Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

Oral Answers to Questions — ORAL ANSWERS TO QUESTIONS

Mr. Speaker: I propose to intervene if supplementary questions advance arguments rather than ask questions.

TRANSPORT

M56 Motorway

Sir Anthony Meyer: asked the Secretary of State for Transport when he expects completion of the dual carriage connection between the M56 and the Welsh border.

The Under-Secretary of State for Transport (Mr. John Horam): In the autumn of 1980.

Sir A. Meyer: That is very good news to the whole of North Wales. Will the hon. Gentleman do what he can to ensure that this timetable does not slip?

Mr. Horam: Yes, indeed. As the hon. Gentleman knows, the North Cheshire motorway is now under construction. I am therefore confident that we shall complete the work by the date that I have suggested.

Mr. Jim Callaghan: Will the Minister state what representations he has had about the proposed extension of the M66 motorway, the one which will go round the outer ring road of Manchester—

Mr. Speaker: Order. That is another matter altogether and a Question about it should go down on the Order Paper.

Vehicle Excise Duty

Mr. Adley: asked the Secretary of State for Transport what representations

he has received about his recent statement proposing to eliminate road fund tax.

Mr. Hal Miller: asked the Secretary of State for Transport what representations he has received on his suggestion that vehicle excise duty be replaced by a tax on petrol.

The Secretary of State for Transport (Mr. William Rodgers): The Government's decision to phase out vehicle excise duty has been widely welcomed.

Mr. Adley: I recognise the superficial attractions of the Secretary of State's proposals, but is there not a danger that the main beneficiaries will be two-car families, where the first car is run by the company and the second car is the wife's runaround, while those who will bear the most hardship will be low income workers in rural areas who need their cars to get to work? Is the Secretary of State satisfied that he adequately and fully consulted everyone concerned before making his announcement?

Mr. Rodgers: I readily agree that if there are to be winners as a result of the abolition of VED, there will be some who will be worse off. But I have considered this very carefully. I ask the hon. Gentleman, and other hon. Members, to look with some attention at exactly what we say about rural areas in our information paper. The picture for rural areas is a great deal better than some people initially supposed.

Mr. Miller: Can the Secretary of State explain how his proposals will lead to savings, in view of the need to continue the Swansea centre for licensing diesel vehicles and heavy lorries, and also for checks on MOT and insurance? How will those checks be made if even the present checks on the tax cannot be made?

Mr. Rodgers: There is no doubt in the minds of all those most directly involved that there will be a substantial reduction in staff as a result of this proposal. I do not think that there are any arguments about that. The role of Swansea is far larger than merely collecting vehicle excise duty, and, given the normal length of stay in employment there, I am glad to say that there will be no compulsory redundancies. However, there will be


fewer people working there once VED has been phased out.

Mr. Home Robertson: Is my right hon. Friend aware that many of my constituents, and others in remote and rural areas, have to drive much further than the 16 mile round trip to work which is quoted in his proposals? Is he prepared to make a much deeper analysis into the effect of these proposals on rural areas?

Mr. Rodgers: Yes. If my hon. Friend will read the information very carefully I think he will discover that we do not say simply that those who travel 16 miles to work will be the beneficiaries. That is the average journey to work in rural areas, and this leaves a substantial extra amount of mileage which someone doing an average number of miles per gallon can drive. Additionally, and this is a very important point, I believe that these proposals will enable some people in rural areas who until now could not afford to put a car on the road, and who do not intend to do a long mileage, to do so.

Mr. David Steel: How can it make sense, even in the name of conservation, to introduce a change which could make motoring cheaper in central London and yet more expensive in rural areas? If the Secretary of State is to make the transfer to petrol tax, which is not something to which one could object in principle, will he consider varying the tax regionally?

Mr. Rodgers: I confess that I had hoped that the House would rejoice at the ending of a tax. I am slightly surprised at the somewhat grudging approach of the Opposition. I am comforted to know that on the basis of the MORI poll, which has been published, there is a clear majority in favour of abolition, not only among Labour voters but among Conservative and Liberal voters, too. In practice, I think that the effect of abolition will be far more favourable than the right hon. Gentleman suggests.

Mr. Ronald Atkins: Does my right hon. Friend agree that this is the fairest tax possible because it taxes the use of the road? The majority of the population realise that, especially the 8 million of the 14 million road users who will benefit.

Mr. Rodgers: My hon. Friend is quite right. This is much the fairest way of raising taxation from the motorist. The House has been concerned with the level of evasion. It was plain that evasion could not be eliminated without an unfair intrusion into people's privacy. The abolition of vehicle excise duty will get rid of the unfairness.

Mr. Norman Fowler: Is the Secretary of State aware that he is simply replacing one tax with another? Will he confirm that a new registration document will replace vehicle excise duty? Will he tell us how often that document will have to be renewed, whether it will have to be displayed and how much it will cost? Unless he can tell us that, it must cast doubt on all the estimates in the Department's booklet concerning administrative savings as a result of which the motorists will be better off.

Mr. Rodgers: I am surprised that hon. Members are so halfhearted about a proposal which will reduce a great deal of the bureaucracy about which they have complained in the past. It will make life a great deal simpler for the motorist, and as a result, the great majority of motorists will be delighted. I have taken full account of the need to maintain minimum form of registration. It is all in the document, and those details which have not been settled will be matters on which we shall be consulting while VED is being phased out.

Mr. Adley: On a point of order, Mr. Speaker. In view of the unsatisfactory nature of the Minister's answer, I beg leave to give notice that I shall seek to raise the matter on the Adjournment at the earliest possible moment.

Mr. Rathbone: asked the Secretary of State for Transport what changes he is considering in the rate and methods of charging road fund tax.

Mr. William Rodgers: I have already announced the Government's decision to abolish vehicle excise duty on petrol driven vehicles and to review its future on diesels.

Mr. Rathbone: Unlike some of my hon. Friends, I welcome this initiative by the Government, but I do not think that the Secretary of State fully appreciates the great concern felt by those


living in non-metropolitan areas about the levels of tax that will be introduced and about the schedule for the introduction of all those taxes that will replace the present road fund tax. Can the hon. Gentleman alleviate that concern and reassure the House that we shall have an opportunity to debate the matter?

Mr. Rodgers: I should greatly welcome a debate at a time convenient to the House, because I think that sober consideration of the proposal will bring more hon. Members than earlier appeared apparent to the same view as the hon. Gentleman's, namely, that the change makes good sense. It will also give me an opportunity to spell out the broad timetable that we have in mind. We shall be consulting on all the outstanding issues and phasing out the duty by 1983, but it will be for my right hon. Friend the Chancellor of the Exchequer to make the particular decisions at the appropriate time.

Mr. Stoddart: Is my right hon. Friend aware that his announcement about the abolition of the road fund licence has been generally welcomed, but does not he think it strange that Conservative Members, who in other contexts are in favour of a tax on expenditure rather than direct taxation, should be against this measure?

Mr. Rodgers: I agree with my hon. Friend. It is strange, but the Opposition never fail to amaze me by their lack of judgment on issues of this kind. It is clear that the abolition of vehicle excise duty is a fair way in which to proceed. I think that the fact that the change will fall more harshly on a man who owns a Rolls than on someone who owns a Mini is a move in the right direction.

Mr. Paul Dean: Does the right hon. Gentleman realise that the answers that he has been giving recommend us to jump from the Swansea frying pan into the fire, without the benefit of abolishing the Swansea licensing centre? Will he recognise that his figures show that motoring and delivery costs in rural areas will rise significantly?

Mr. Rodgers: I do not agree. Exactly how an individual's motoring costs will be affected will depend upon how much he uses his car, the size of his car and the miles per gallon that he obtains. It

is plain that in the rural areas a number of people who today lack mobility will be able to achieve it by putting a car on the road for the first time and using it for a relatively modest mileage.

Mr. MacGregor: asked the Secretary of State for Transport what timetable he envisages for the discussions and subsequent action on the Government's proposals for phasing out vehicle excise duty.

Mr. William Rodgers: Consultations with those principally concerned will begin as soon as possible. We shall then consider the timetable for phasing out.

Mr. MacGregor: If the phasing out of the existing computers is crucial to the timing, what is the difference in scale and costs between ordering new computers to replace the present system, including those used for vehicle excise duty, and ordering computers to deal with registration and insurance? So that we can judge the proposal fairly and properly, will the Secretary of State now answer the question asked by my hon. Friend the Member for Sutton Coldfield (Mr. Fowler) and tell the House what will be the level of fee for drivers to cover registration, insurance and so forth?

Mr. Rodgers: I cannot answer the latter question. This is an issue on which there must be consultation. Phasing out will take place by 1983, so there is adequate scope for working out a satisfactory formula. The overall administrative saving as a result of abolition will be about £20 million. Had we proceeded with re-ordering the computers we should have faced the possibility of a considerable amount of abortive expenditure, running into several millions of pounds.

Mr. Kenneth Lewis: Does the Secretary of State propose to consult the moped and lawnmower lobby? Does he realise that many people will feel that they are being badly treated when they realise that there is to be an increase in their petrol costs, without any compensating advantage?

Mr. Rodgers: I shall be delighted to consult such people and to receive a deputation led by the hon. Member for Rutland and Stamford (Mr. Lewis).

Mr. Peter Mills: Is the Minister aware that he has got it wrong when it comes to the rural communities in these matters?


Whatever he says, his proposal will bring about more unemployment and depopulation in the rural areas. Will he bear in mind that this shows once again the bias of the Government against the rural community?

Mr. Rodgers: That is the most awful nonsense. I appreciate the anxiety felt by hon. Members on both sides of the House about transport problems in the rural areas. But the Government, in the past year, have made provision in a Bill—which the Opposition voted against—for improving public transport in the rural areas and for introducing more flexibility.

Mr. Ronald Atkins: Does my right hon. Friend agree that the Opposition always ignore the needs of the majority of people who live in the country—those who do not have cars? Perhaps the new taxation system will do something to help public transport in the rural areas.

Mr. Rodgers: My hon. Friend is right. The provision for better public transport in rural areas and more flexibility, which has been welcomed by a number of Opposition Members, is designed to help those who are most in need. It is certainly a move in the right direction for people to be able to use a car to go to work, or for other reasons, when they could not previously afford to do so. I am surprised that hon. Members do not endorse that.

Mr. Stephen Ross: The Minister may have my support for his intentions, but will he come to my constituency with me to explain to car drivers there, first, why they have been paying an extra 10p a gallon for petrol over the past three years. and, secondly, that his proposals will probably add another 20p to their costs? How will he get away with that one?

Mr. Rodgers: As the hon. Gentleman recognises, there will be no relative cost to his constituents as a result of any increase in the price of petrol which may occur in due course. I agree with the hon. Gentleman, however, on the matter to which he has drawn our attention before. The Isle of Wight and some other remote parts of the country have to pay more for their petrol, and I appreciate entirely the price which falls to be paid by the hon. Gentleman's constituents.

Roads (White Paper)

Mr. Loveridge: asked the Secretary of State for Transport if he has yet concluded his discussions on the White Paper on roads.

Mr. Horam: Not yet. We hope to report on developments in next year's White Paper.

Mr. Loveridge: Is the Minister aware of the deep anxiety felt by people in Havering, Upminster and similar areas about the safety of their children on the roads, the noise level in their homes from the road, and the frustrations of commuter travel to work? Will he, at long last, aim to have a debate on his White Paper on roads so that these real fears can be discussed?

Mr. Horam: We are always anxious to have debates on our White Papers. May I suggest an Opposition Supply day?

Mr. Kershaw: Will the Minister take time to discuss what is said in the White Paper about co-ordination between Government Departments? Is he aware that in relation to the Stroud inner ring road, for example, his Department has been giving grants for the roads to be made and the Department of the Environment has been listing buildings, thus preventing those roads from being built? Will he take an early opportunity to meet his colleague and decide which view should prevail?

Mr. Horam: The hon. Member has made a fair point. I am well aware of the problem in that case. I shall be going to Bristol tomorrow to talk to representatives of the county council concerned and I am sure that they will raise this matter with me.

Mr. Edwin Wainwright: Will my hon. Friend take account of the fact that, over a number of years, the condition of roads in this country has been deteriorating? Is it not time these roads were repaired to bring them up to a reasonable standard so that potholes will not damage vehicles and cause accidents?

Mr. Horam: I understand my hon. Friend's view. He will be interested to know that the spending on road maintenance throughout the country next year


will be increased substantially over this year. That is after two or three years of restraint following public expenditure cuts. We are not only bottoming out, but are improving maintenance expenditure by local authorities. Maintenance expenditure by the Government on trunk roads and motorways has substantially increased anyway.

M11 Motorway

Mr. Haselhurst: asked the Secretary of State for Transport what representations he has received about access to the M11 motorway from central London; and if he will make a statement.

Mr. Horam: Representations have been received from hon. Members and motorists. Improvements in signing to the M11 have been made in recent months and will continue to be made in conjunction with the Greater London Council.

Mr. Haselhurst: Is the Minister aware that it takes between half an hour and one and a half hours, according to the time of day, to reach the southern end of the M11 from central London? In those circumstances, is it not irresponsible to claim that as a result of the construction of the M11 there is easy access from Stansted airport to London? Has the Department any plans to improve access to the M11?

Mr. Horam: Yes. As part of the programme that has been announced, partly in conjunction with our inner city package it is proposed to build extensions to the south of the M11—the link between South Woodford and Hackney Wick on the one hand, and South Woodford and Barking on the other. Those are programmed to begin between 1981 and 1983. This will help the problem, which is a difficult one, because we are talking about a heavily built-up area.

Mr. Jay: Is my hon. Friend aware that any proposal to extend motorways further into inner London will meet with a great deal of opposition?

Mr. Horam: We must take that perfectly legitimate view and weigh it against the fact that there are many communities in inner London, particularly in East London, who feel the need for some connection with the motorway system in

order to encourage commercial development. We must balance both those viewpoints.

Mr. Tebbit: Will the Minister ensure that he does not signpost, or allow the GLC to signpost, heavy lorry traffic bound for the M11 through residential streets in the London borough of Waltham Forest?

Mr. Horam: That is precisely the problem which has led to some delay in adequate signs being put up for the M11. There is the problem of where the signs go, because wherever one puts them one is bound to affect someone's environment adversely.

Roads (South Humberside)

Mr. Brotherton: asked the Secretary of State for Transport if he will make a statement about the road construction programme on the south bank of the Humber.

Mr. Horam: Of the 28 miles of the M180 South Humberside motorway, 12 are already open to traffic and a further 11, comprising the Scunthorpe southern bypass and the M181 link, will be opened on 15th December. We hope that the remaining five miles, which include the Trent bridge, will be opened next summer. Proposals to provide a new all-purpose trunk road between the eastern end of the M180 and Grimsby will be the subject of a public inquiry next month.

Mr. Brotherton: Is the Minister aware of the grave concern on the south bank of the Humber about the lack of progress in building our road, particularly to the port of Immingham? Immingham is the fifth largest port in the United Kingdom. It is larger than Hull and Liverpool combined. We welcome the decision that the two-tier system is to be allowed on the Brigg-Scunthorpe to Grimsby road, but it is vital that the spur road to Immingham is built.

Mr. Horam: Proposals for the Immingham link road will be considered at next month's public inquiry, so we are making excellent progress. More roads are being built now on Humberside than in any other part of the country. I am not sure that that would have happened under a Conservative Government, bearing in


mind their attitude towards public expenditure.

Port of London Authority

Mr. Temple-Morris: asked the Secretary of State for Transport when he next intends to meet the chairman of the Port of London Authority.

Mr. William Rodgers: Shortly.

Mr. Temple-Morris: The Port of London Authority has made it clear that the Royal group should close and that there should be a reduction in the work force of 2,050. The Price Waterhouse report, which has been relied on by the Secretary of State—

Mr. Speaker: Order. Is the hon. Member asking a question? It sounds like a statement.

Mr. Temple-Morris: I take your point, Mr. Speaker. Dealing with the number of lay-offs, Price Waterhouse recommended—

Mr. Speaker: Order. No. The hon. Gentleman must ask a question.

Mr. Temple-Morris: Is it correct, and is the Secretary of State aware, that according to the figures we have descended to the magnificent total of 1,489 by way of a reduction of the work force, with no closures? Is the right hon. Gentleman satisfied that this justifies the expenditure of £35 million of taxpayers' money?

Mr. Rodgers: The hon. Gentleman misunderstands the position. The figure of 1,489 relates only to the period from May 1978 to June 1979. I am generally satisfied with the progress that we are making, and 1 think that there is a good prospect that in due course, despite the difficulties, we shall chart a path to viability.

Mr. Ronald Atkins: Is my right hon. Friend aware that some of London's difficulties arise from the fact that London is competing with cross-Channel ports which are heavily subsidised? One of them receives as much as £60 million a year. Also, London has certain responsibilities for maintaining the Channel. Is it not time that we had some conformity of charges within the Common Market?

Mr. Rodgers: I take my hon. Friend's point, which he has made before. I agree that we should seek as far as we can to

have a system that is fair to all. But the problems of London are more deep seated than that. They are part of the history of our industrial decline, and in that respect I think we must face them as being unique and peculiar to London.

Mr. Norman Fowler: Given that the Government propose to give £35 million to the Port of London, and £10 million extra in loans, will the right hon. Gentleman give an assurance that Parliament will he asked to authorise any scheme that he puts forward and that for the debate he will make available all relevant information, including the Price Waterhouse report.

Mr. Rodgers: Yes, Sir. I think that I can give all those undertakings.

Road Haulage Industry

Mr. Goodlad: asked the Secretary of State for Transport what plans he has to expand public ownership in the road haulage industry.

Mr. Horam: None at present.

Mr. Goodlad: Will the Minister say how he thinks the public interest would be served, if at all, by an extension of nationalisation in the road haulage industry?

Mr. Horam: It is important that we set good standards in the industry. There are notoriously many cowboys in it, many bad employers. Although the average standard may be good, the existence of a good public sector employer in this area redounds to the health of the industry as a whole.

Mr. Moate: Does the Minister appreciate that we understand his difficulty, which is that he and his right hon. Friend want to drive on the right but his party keeps pulling to the left? Can he explain to the public and the road haulage industry whether the commitment in Labour's programme for 1976 to nationalise a substantial part of the industry represents his party's policy?

Mr. Horam: I refer the hon. Gentleman to the White Paper on transport policy, where we firmly, clearly and very simply—so simply that the hon. Gentleman should be capable of understanding —set out our views.

British Railways

Mr. Pattie: asked the Secretary of State for Transport when he next intends to meet the chairman of the British Railways Board.

Mr. Tebbit: asked the Secretary of State for Transport when he intends next to meet the chairman of British Railways.

Mr. Corbett: asked the Secretary of State for Transport when he is due next to meet the chairman of British Railways.

Mr. William Rodgers: Within the next week or two.

Mr. Pattie: When the right hon. Gentleman meets the chairman of British Rail, will he give him an extra incentive to remove the cause of the unofficial strikes which have created such havoc for commuters, by saying that the proposed fare increases will be delayed by one month for every day's unofficial strike?

Mr. Rodgers: The simple answer is"No, I certainly shall not make such a preposterous proposal ". I am trying very hard to work out the logic behind it. For the moment I am defeated.

Mr. Tebbit: Is the Secretary of State aware that the service from Liverpool Street to Chingford is possibly the most unreliable commuter service in London? The number of cancellations is so great that they are not even advertised. Is the right hon. Gentleman aware that British Rail tells me that that is because the wages of a signalman or a guard are scarcely higher than the unemployment benefit for a married man with three children? How can the right hon. Gentleman help British Rail overcome this problem?

Mr. Rodgers: The question of the wage structure on the railways is very important. It is curious that although I am often urged in the House to draw the attention of the chairman of British Rail to the need for greater productivity, meaning lower levels of manpower, there are at the same time substantial numbers of vacancies in the country, which must be filled. I hope that the productivity agreement, if it is negotiated between the Board and the railway unions, will result in the removal of anomalies of the kind that the hon. Gentleman suggests.

Mr. Bagier: Will my right hon. Friend take advantage of the meeting to congratulate Sir Peter Parker on the tremendous advance that is now taking place in the railway industry? Will he ask Sir Peter to discuss with him the plans for the further electrification of the railways, particularly the east coast route? Will my right hon. Friend also talk to him about the possibility of going further ahead with the Channel tunnel venture?

Mr. Rodgers: British Rail is discussing with the French railways a proposal of its own for a Channel tunnel. I have not yet received the proposal, and it has not yet been published. But I think that in due course it will be a matter that the House may well wish to consider.
As for electrification, there is a joint working party on the matter between British Rail and my Department. The work involved is considerable, but as soon as the results are available I expect that hon. Members will wish to be informed about it.
I was very glad to hear what my hon. Friend said about the chairman of British Rail. I think that on both sides of the House there is an appreciation of all that he has done in his two years of office.

Mr. Thompson: As journey-shrinking has been going on apace between Edinburgh and London and between Cardiff and London, will the right hon. Gentleman consult the chairman of British Rail about the possibility of shrinking the journey time between Belfast and London by reinstating the Dumfries-Stranraer railway line? Will he undertake to consult his right hon. Friend the Secretary of State for Northern Ireland about the advantages that that would have for the people of Northern Ireland?

Mr. Rodgers: I note what the hon. Gentleman says, and I shall discuss the matter with my right hon. Friend. The problems involved are often those of cost, but I shall look into the matter.

Mr. Cryer: When my right hon. Friend next meets the chairman of the British Railways Board, will he point out to him that we carry the lowest amount of freight by rail in the EEC? Will he recommend ways of improving the position—for example, by maintaining subsidies to freight? Does my right hon. Friend


accept that grants under section 8 of the Railways Act 1974, for example, are not enough to redress the drift of freight from the railways? Will my right hon. Friend urge the chairman to carry by rail dangerous cargoes, such as those from Flixborough?

Mr. Rodgers: I agree with my hon Friend that section 8 grants alone are not sufficient to ensure the transfer of freight from road to rail which he and I would like to see. I believe that the marketing policies of British Rail are more likely than they were in the past to enable the railways to carry the freight to which they are best suited. If a transfer can take place, so much the better, but I cannot change my policy of giving no subsidy for freight.

Mr. Costain: As the Secretary of State today appeared to make an announcement about the Channel tunnel, about which the hon. Member for Folkestone and Hythe has been trying to find out for some six months, will he guarantee that he will advise the hon. Member for Folkestone and Hythe what he is really up to in this connection?

Mr. Rodgers: The hon. Member for Folkestone and Hythe (Mr. Costain) is quite right to draw my attention to his particular interest. My reply to the question which he did not ask is that the Government's position remains unchanged since the announcement made by the then right hon. Member for Grimsby, the late Anthony Crosland, some years ago. This study has been taking place between British Rail and French railways. It is their document, and it is for them to decide what to publish and when.

Railways (Electrification)

Mr. Hooley: asked the Secretary of State for Transport what is his policy on railway electrification.

Mr. Horam: As my right hon. Friend told my hon. Friend the Member for Newham, South (Mr. Spearing) on 24th May, we are conducting a joint study, with the British Railways Board, of the case for a programme of main line electrification. In the meantime, we are ready to consider any specific British Rail schemes put to us in the normal way.

Mr. Hooley: Is my hon. Friend aware that there is a splendid electrified line between Sheffield and Manchester which goes under the Pennines and through a great civil engineering project, the Wood-head tunnel, and that the only prospect for this in the eyes of British Rail is to scrap it? Will he impress upon the chairman of British Rail that this is an extremely shortsighted policy, especially since everywhere else in the country electrification is proceeding?

Mr. Horam: My hon. Friend has made a fair comment about the Woodhead tunnel and the electrified line which runs through it. The future of the line is being discussed by the Board and by the unions, and I am informed that no decisions have been taken yet.

Mr. Fry: Does the Minister recall that the Leitch committee asked for a uniformed method of appraisal of major transport projects? In those circumstances, is there not a clear need for all British Rail electrification proposals to be measured against proposals for new road building so that they can be compared on a more equitable basis?

Mr. Horam: The hon. Gentleman has slightly misquoted the report of the Leitch committee. It said that where it was practicable there should be relevant comparisons with a railway alternative. We intend to do that.

Mr. Flannery: Will my hon. Friend accept that there is strong feeling in Sheffield and, we have reason to believe, in Manchester about the possible scrapping of the Woodhead line? Does he know, for instance, that the line runs through the great Woodhead tunnel, which was probably the first great railway tunnel in the world, and that we want to know whether he will consult both Sheffield and Manchester before any major decision is taken about that line?

Mr. Horam: In the first instance, as I have said, this is a matter for the study at present being undertaken by the British Railways Board and in its talks with the unions. It is right that the Board should make its initial views known before we go any further.

Driving Licences (Endorsement Removal Fee)

Mr. Dudley Smith: asked the Secretary of State for Transport why a fee of


£2 is charged to remove an endorsement from a driving licence; and whether he will reconsider changing this regulation.

Mr. Horam: The fee covers the administrative costs of issuing such licences. We can see no reason to change it.

Mr. Smith: Does the Minister understand that those who have endorsements on their licences have to pay what is virtually a further fine to get them removed? Is this justice?

Mr. Horam: Frankly, I think that it is. The costs of performing these small functions should be met by the public who incur them and not by the general taxpayer. I am surprised that a Conservative Member should advocate the contrary principle.

Mr. Conlan: When motorists are exchanging their old type five-year licences for the new type computer-produced extended-period licences, will it be possible to feed into the computer the detail that records of endorsements which have already expired should not be shown on the new licences?

Mr. Horam: My hon. Friend has made an interesting suggestion and I shall consider it.

Concessionary Fares

Mr. Canavan: asked the Secretary of State for Transport what representations he has had about a national scheme of concessionary fares for retirement pensioners and the disabled.

Mr. William Rodgers: A great many.

Mr. Canavan: Does my right hon. Friend agree that it is a national disgrace that local authorities fail to take up £20 million of Government assistance which is available to subsidise transport costs, and that the worst offenders in this respect are Tory-controlled councils? In view of this, and in view also of the disparities which exist between the various local authority schemes, will the Government introduce a national scheme of free travel for pensioners and the disabled?

Mr. Rodgers: I agree entirely with my hon. Friend. It is a local disgrace that a number of authorities do not provide schemes of any kind for old people and the disabled. It is quite wrong, and there

is no need for it. As my hon. Friend said, we made clear more than a year ago that resources were available under the rate support grant system.
To move to a national scheme of free fares would cost more than £200 million, on the best estimate. It is difficult to see an immediate priority for that. But I am looking at the possibility of some form of national concessionary fares scheme, because I agree very much about the need for transferability. It should be possible for pensioners to visit their children and grandchildren wherever they may be and obtain the same benefits as they have for travelling in their own localities.

Mr. Donald Stewart: Is the right hon. Gentleman aware that, in a recent debate on a Private Member's motion, there was support from both sides of the House for a national scheme for concessionary fares for pensioners and the disabled? Is he also aware that, contrary to the estimate that he has just given, the opinion was that such a concession, far from costing the nationalised industries money, would generate new traffic as a result of pensioners and the disabled taking up seats on buses, trains and boats which otherwise would be empty?

Mr. Rodgers: I have to tell the right hon. Gentleman that if pensioners travelled free, although they would generate new traffic, they would also generate additional costs. For that reason, it is difficult to see the prospect of free fares for all without a substantial additional sum being involved. I recognise the feeling on both sides of the House. This is a genuine social problem. My deep regret is that in the meantime some councils have failed to take up the opportunities open to them. That is deplorable.

Mr. Ron Thomas: Will my right hon. Friend accept that all Government supporters see the Tory councils which have acted in this indefensible way as once again attacking the elderly and those least able to look after themselves? The National Association of Old-Age Pensioners would welcome a scheme which was applicable right across the country. I am encouraged by what my right hon. Friend has said today.

Mr. Rodgers: I am grateful to my hon. Friend for that.

Mr. Moate: Does the right hon. Gentleman agree that his January circular and his subsequent condemnation of some councils have served only to give a misleading impression? Will he make clear that local authorities will still have to bear nearly 40 per cent. of the cost of concessionary fare schemes, at a time when the Government are urging local authorities to keep down rates at least to the level of inflation and at the same time are penalising many of the shire counties which he is now criticising, by means of the distribution of resources?

Mr. Rodgers: I agree that under the present financial arrangements local authorities have to find some money to contribute towards concessionary fares schemes. But I think that this is a test of meanness, because some of them do and some of them do not. If the hon. Gentleman suggests that this information is not available, I shall publish in Hansard at the earliest possible date a list of all those local authorities which are failing to provide schemes of any kind.

Mr. Farr: On a point of order, Mr. Speaker. I beg to give notice that, in view of the Minister's unsatisfactory answers, I shall seek to raise this matter on the Adjournment at the earliest opportunity.

Driver and Vehicle Licensing Centre

Mr. Andrew MacKay: asked the Secretary of State for Transport what are the latest figures for the annual cost of the Swansea Driver and Vehicle Licensing Centre; how many people are employed at the centre; and what were the equivalent figures under the previous non-centralised system.

Mr. Horam: The estimated cost of running the centralised licensing system in 1978–79 is £49·3 million at November 1977 prices; the old system by now might have cost about £47 million. There are 5,100 staff at the DVLC and 2,100 in local offices. There were about 5,800 staff employed in local authority local taxation offices in 1972–73 before the change-over. Since then the number both of drivers and vehicles has increased by some 20 per cent.

Mr. MacKay: How does the Minister justify the Secretary of State's statement

that the scrapping of the vehicle licence will cut the costs of Swansea? Will we not still be required to have a registration document which we will have to renew annually? Will we not still have to show Swansea a current MOT certificate each year and an insurance certificate? Bearing all that in mind, how will this move cut the costs of Swansea?

Mr. Horam: It will do so quite simply. We are cutting out all the handling costs involved in processing well over £800 million, which has to be collected, and the problem of rebates and repayments of different kinds. All that will be cut out, and the saving, as my right hon. Friend has said, will be roughly £20 million. I am surprised that the Conservative Party in particular should be opposing a reduction in bureaucracy and a simplification which can lead only to the improvement of the service offered to the consumer, as well as to a further increase in the efficiency of government.

Mr. Temple-Morris: Will not the Minister agree that much of the cost problem to do with Swansea is the result of the sort of computers which are being used there and which are soon to be replaced? Will he give his Department's view about the future purchase of a replacement computer and say whether the best one for the job can be purchased whether it is British or foreign?

Mr. Horam: I simply do not agree with the hon. Gentleman. The problems which have arisen at Swansea over the last three or four years have been transitional, arising from running in a new system. That is why, in reply to a question at the end of the last Session, I was able to say that there had been a massive improvement in the efficiency with which the centre has handled consumer complaints.

Heavy Lorries

Mr. Dykes: asked the Secretary of State for Transport what further steps he plans to take to reduce the nuisance caused by heavy lorries in towns.

Mr. William Rodgers: In addition to our efforts to develop a quieter heavy lorry and more effective means of controlling diesel smoke, my hon. Friend the Under-Secretary of State recently urged local authorities to make more extensive use of the Heavy Commercial Vehicles


(Controls and Regulations) Act 1973—the Act to which the hon. Gentleman has given his name—and advised them that we would always try to look favourably on road schemes designed to help to divert lorries from sensitive areas.

Mr. Dykes: Since the Minister has mentioned that Act, I hope that he will forgive me if I ask him this question. Since there would be a widespread explosion of anger in this country from serious environmentalists and citizens if there were any plan to make lorries heavier than 32 tons, will he now confirm that he has taken action against the civil servants who leaked to the press the fact that there was a departmental plan so to do —or will he confirm that he is still out of control of his own Department?

Mr. Rodgers: At no time have I been out of control of my own Department. If Parliament thinks that I have been, Parliament can express its view to that effect. The policy of my Department is the policy of Ministers and will remain so. I personally regret that a confidential minute of one of my officials who is not in a position to defend himself became more widely available. I have complete confidence in that official and, generally, in the loyalty and the integrity of civil servants as a whole. That is how it has been and how it ought to remain.

Mr. Andrew F. Bennett: Is my right hon. Friend aware of the proposals of the Manchester airport authority to transport large quantities of limestone from Buxton through my constituency to the airport for its reconstruction, causing a great deal of damage to existing congested roads? Will he insist that this heavy limestone is transported by rail and not by road through my constituency?

Mr. Rodgers: I was not aware of the problem and I am not sure that I have the powers to insist, but I shall certainly look into the matter.

Sir Anthony Royle: Is the right hon. Gentleman aware that many residents in South London, particularly in my constituency, are reaching a state of despair about the ever-increasing numbers of heavy juggernaut lorries passing through the area? Will he take steps to" de-prime"the Kew Road and also ask his officials to make sure that they answer telegrams

and communications from local authorities sent to his Department, which recently were not answered at all?

Mr. Rodgers: On the last point, if the hon. Gentleman has a complaint I shall certainly look into it, because overall I think that my Department deals very well with queries of the kind it receives —often urgent, frequently complicated and generally demanding. As for heavy lorries in the way that the hon. Gentleman describes them, no one likes heavy lorries wherever they go. That is why I agreed with the hon. Member for Harrow, East (Mr. Dykes) that we do not want heavier ones.

Mr. Spriggs: Is my right hon. Friend aware that a few years ago all the limestone being transported from the Derbyshire or Buxton area to other parts of the country was always carried by rail? Why has it been transferred to the roads, and what will he do about it?

Mr. Rodgers: I was not aware and I do not know, but I shall look into the question.

Mr. Moate: With regard to the document referred to by my hon. Friend the Member for Harrow, East (Mr. Dykes), does not the Secretary of State agree that, whatever view one takes about the heavier weight argument, that memorandum has made the situation much more difficult? Is it not the case that a Civil Service document which claims that the main end of an inquiry should be a clear and overwhelming case for heavier weights is bound to convey the impression that, far from such an inquiry being impartial and objective, it could have been cynically manipulated? As it is in all our interests that the public accept such inquiries as impartial and objective, does not the right hon. Gentleman now have an obligation to take some steps to restore public confidence in the sort of inquiry which is likely to be established by his Department?

Mr. Rodgers: It is very difficult to deal with a statement that there has been a loss of public confidence. I agree that there has been some disquiet, and I greatly regret that circumstances do not allow me to explain in more detail how these matters fall out. However, the proposal for an inquiry was mine and it is the task of my officials to advise me as


they think fit. As I say, I make the policy and very often the views of my officials differ one from another. That is the way it is, and I think that that is the best way in which we can ensure that policy when it is made has taken account of the opinions expressed. However, I have no doubt at all about the integrity of the official himself and I greatly regret that he has been the subject of some unfair criticism.

Sir Anthony Royle: On a point of order, Mr. Speaker. In view of the unsatisfactory nature of that reply, I beg to give notice that I shall raise the matter as soon as possible on the Adjournment.

Driving Instructors

Mr. David Mitchell: asked the Secretary of State for Transport what arrangements he intends to make with regard to the licensing of driving instructors; which body or bodies those who give driving instruction will be required to join; and whether he will make a statement.

Mr. Horam: My right hon. Friend intends to seek powers to abolish trainee licensing at the first suitable opportunity. Only those registered in the Department's register of approved driving instructors would then be authorised to give paid instruction. Qualification for inclusion in the register is a question of individual competence tested by examination, not a matter of belonging to a particular body.

Mr. Stephen Ross: Is the Minister aware that there may be plenty of driving instructors but that there are very few ministerial appointments of instructors to take those who wish to pass their test? There is a shortage throughout the country and this is affecting employment, particularly among the young who have to make long journeys to work. What is the Minister doing about that?

Mr. Horam: I accept that there is a real problem at the moment over the length of time that people have to wait to take their driving test. It is something which gives me great concern. What we are doing about it is, first, trying to redistribute the existing examiners more evenly around the country to sort out the worst problems and to recruit 250 more to cut down the waiting time at the first practical opportunity.

Mr. Whitehead: Will my hon. Friend look again at a matter about which I have been in correspondence with him—the amalgamation of the Government scheme with some of the RAC schemes for training and testing, since these not only might fill the gap in waiting for motor-cycle tests but have a very stringent acclimatisation programme, which the State scheme does not?

Mr. Horam: That is something which has been gone into from time to time. I will certainly look at it again, but we must always proceed so that we do not reduce the standards of our testing procedures.

National Union of Railwaymen

Miss Fookes: asked the Secretary of State for Transport when he next intends to meet the general secretary of the National Union of Railwaymen.

Mr. William Rodgers: Soon.

Miss Fookes: Can the Secretary of State elaborate? When he meets the general secretary, could he make a point of discussing improved productivity, since it is probably more important to talk to union representatives than to talk to the chairman of the British Railways Board on this matter?

Mr. Rodgers: By"soon"I mean either before Christmas or after. As for productivity, I agree with the hon. Lady that the trade unions have a part to play. However, as I said earlier, discussions are taking place between the trade unions and the BRB about the productivity scheme, and I hope that they will succeed

Mr. Channon: When the Secretary of State next meets the general secretary of the NUR and other leading figures in the rail unions, will he see whether he can take any initiative that will prevent the type of action that took place today which has led to thousands of my constituents being unable to travel to work on the Fenchurch Street line, which has been shut by the action of a small number of men?

Mr. Rodgers: A number of the stoppages, particularly in London and the South-East, have caused much inconvenience to the travelling public and have been unnecessary. I expect that that is the view of the leaders of the trade unions


concerned. Industrial relations are difficult, but the record is a great deal better than is sometimes suggested.

Mr. Bagier: Will my right hon. Friend ask the general secretary of the NUR to meet the hon. Member for Plymouth, Drake (Miss Fookes) so that he can explain to her that a considerable number of productivity agreements in the rail industry have led to a massive reduction in manpower on the railways and to increased efficiency? Would it not be a good thing if credit was sometimes given for this improvement?

Mr. Rodgers: My hon. Friend is right to draw the attention of the House to this. There has been a substantial reduction in manpower. It is generally agreed that only through the increased efficiency of the railways—and there is always room for improvement—can we secure their future.

Mr. Bowden: When the Secretary of State is good enough to meet the general secretary of the NUR, will he tell him in no uncertain terms that unless the industrial action in the South-East is settled and my constituents and many others can be sure of a regular service they will look for alternative means of travelling, which will have a catastrophic effect on the railways?

Mr. Rodgers: If the hon. Member knew more about these matters, he would know that it would be unwise of me to talk to the general secretary of the NUR about matters which concern ASLEF.

Mr. Cohen: Will my right hon. Friend repeat what he said earlier about the NUR not being involved? Will he tell Opposition Members who raised the question of consultation with trade unions that the vast majority of trade unionists in the industry behave in a responsible fashion and provide a tremendous service for the country but that they are referred to in the House only when difficulties arise? They are ignored when things are going smoothly.

Mr. Rodgers: My hon. Friend has paid a fitting tribute to the majority of railwaymen who do a first-class job and who are representative of an important and worth. while national tradition.

Roads (Public Inquiries)

Mr. Whitehead: asked the Secretary of State for Transport what proposals he has for improving the operation of public inquiries into highway matters.

Mr. Dodsworth: asked the Secretary of State for Transport whether he is fully satisfied with the present operation of highways inquiries.

Mr. William Rodgers: Substantial changes were made as a result of the review of highway inquiry procedures, the report of which was published as a White Paper—Cmnd. 7133—in April. I shall be considering the effectiveness of the new procedures as soon as we have adequate experience of them.

Mr. Whitehead: Does my right hon. Friend accept that just as public confidence was boosted by that review, so it has been jolted by the leaking of the Peeler memorandum? Does he realise that many people believe that any attempt by civil servants to set the agenda so as to rig an inquiry—whether it is a committee of inquiry or a public inquiry—should be disavowed by the Department, whether or not the Secretary of State has confidence in those civil servants?

Mr. Rodgers: My hon. Friend is rather untypically confusing two separate issues. His Question relates to inquiries into highways, for which there are specific and plain procedures. Those inquiries are now conducted by inspectors nominated by the Lord Chancellor.
The other matter to which reference was made earlier is whether a committee should be appointed to conduct an impartial and independent inquiry into lorry weights. The two procedures are totally different. I should be happy to do anything that would restore public confidence because I am sorry that it has been jolted.

Mr. Dodsworth: Is the Secretary of State aware that there is widespread understanding of the need to widen the MI in Hertfordshire but that there is dismay among those who attended the inquiry because the inspector's report was swept to one side by the Minister in an arbitrary fashion? Is he aware that this has resulted in a loss of credibility in the procedures?

Mr. Rodgers: I do not agree that any report would arbitrarily be set aside. There are differences of opinion and emphasis among almost every section of the public about such proposals. The inspector's task is to report on objections to any proposal. The Minister's job is to decide and to answer to Parliament for that decision.

Mr. Arthur Latham: What is the state of play on Archway? What difficulties are involved in making public the information that is obtained?

Mr. Rodgers: The issues are highly complicated. I have made it clear that I have no intention of moving on the proposals made previously for Archway. I hope that on that basis everyone will agree that the relevant information has now been made available.

Mr. Norman Fowler: Does the Secretary of State agree that under successive Governments great efforts have been made to improve the road inquiry procedure? Is it not therefore all the more deplorable that disruptive tactics should still be used at road inquiries? Will the Secretary of State take this opportunity to state clearly that this type of tactic will in no way influence his final decision?

Mr. Rodgers: I am happy to take the opportunity to confirm that. There is no justification for the disruptions which have occurred. The inquiries are set up under procedures agreed by the House and the inspectors are nominated by the Lord Chancellor. It is only fair to all the objectors that these procedures should be conducted in an orderly fashion so that the inspector can make his report.

EUROPEAN COMMUNITY (COUNCIL OF MINISTERS' MEETINGS)

The Minister of State, Foreign and Commonwealth Office (Mr. Frank Judd): With your permission, Mr. Speaker, I will make a statement about the main business to be taken by Ministers of the European Community during December. The more detailed monthly written forecast was deposited on Monday 27th November.
Heads of State and Government will meet in the European Council in Brussels on 4th and 5th December. At present six meetings of the Council of Ministers are proposed for that month; full details are contained in the written forecast.
The Budget Council will meet on 5th December to consider the budgetary implications of the decisions taken by Heads of Government on the Regional Development Fund.
The Finance Council will meet on 18th December and will discuss the European monetary system and any follow-up action necessary in the light of decisions reached at the European Council. It will also discuss the Commission's draft annual report on the economic situation in the Community and the Commission's annual economic review for 1978–79.
The Agriculture Council will meet on 18th and 19th December and is expected to have a preliminary exchange of views on the CAP price proposals for 1979–80 and to consider further the wine market proposals and possibly matters concerning health and hygiene in the milk sector. No Fisheries Council has yet been arranged, but one may prove necesssary.
The Environment Council will meet on 19th December and will hold an additional meeting on 18th December to discuss environment policy generally. The Council is expected to consider the pollution of groundwater by dangerous substances, pollution caused by the paper pulp industry, the quality of water for human consumption, bird conservation and the cost of pollution control.
The Foreign Affairs Council will meet on 19th December and will review any need for follow-up action arising from the European Council. In addition, the Council is expected to discuss the GATT


multilateral trade negotiations; current negotiations between the EEC and the Council for Mutual Economic Assistance, and those for a new EEC/ACP Lomé convention; to review progress in the negotiations on Greek accession to the Community and resume its discussion of the internal and external aspects of the Community's steel policy.
The Energy Council will meet on a date still to be decided and will resume its discussion of the Community energy situation. The Council is also expected to resume consideration of the place of coal in Community energy policy; to consider the scope for Community action in the areas of energy labelling and to discuss the progress of demonstration projects in energy saving.

Mr. Hurd: The Minister referred to the Budget Council. Two weeks ago the Government were hard pressed in the House to publish the Economic Policy Committee document on British contributions to the budget, which had been leaked in The Guardian and upon which I think the Prime Minister drew when speaking at the Guildhall. When are we to see this crucial document?
Secondly, the Minister of Agriculture said yesterday that he still hoped for ministerial agreement on fisheries by the end of the year. The Minister of State has told us today, however, that there is no firm plan for a Fisheries Council. What is happening about that?
I turn next to European elections. When is the Council of Ministers to decide—there is no mention of it in the statement—on the salaries and allowances for Members of the directly elected Parliament? There is a lot of press speculation that the Government are under pressure to provide British taxpayers' money for political parties to campaign in these elections. Has this been discussed in the Council of Ministers, and what is the Government's attitude to this strange proposal?

Mr. Judd: As I have assured the hon. Gentleman, we intend to publish the document. That will be arranged as soon as we can complete the practical necessities.
Our position on the question of fisheries is that we want to make sure of securing progress. I am sure that the

hon. Member, with his experience, will recognise that the preparatory work is most important. We do not want to rush into another Council just for its own sake. We are so committed to getting an effective policy for the whole Community that we want to make sure that the groundwork has been adequately covered.
On salaries and allowances, we have repeatedly made plain— and we stand by our position—that we believe that this matter must be settled well ahead of the election itself. Candidates must know the terms on which they are standing, just as the electorate has a right to know of those terms. The hon. Member asked about political parties in this country, but that has nothing to do with the Community; it is a matter for discussion between the parties.

Mr. Stoddart: I was surprised to hear that it is not intended to discuss the decision of the European Court at Luxembourg on 14th November, which appears to have most serious implications for this country's control over the movement of its fissile materials and the defence of atomic establishments. Has my hon. Friend picked this up yet, and will he be discussing it?

Mr. Judd: I presume that my.hon Friend is referring to the chapter 6 determination. In that context I agree that this is a significant issue, with profound implications for our future energy policy. We have a great deal of detailed work to do in analysing the implications of that decision. I can assure my hon. Friend that we have this matter well on board, and that we will want to see that there is proper deliberation on the matter within the Community.

Mr. Russell Johnston: I know that the Minister is a great advocate of open government. Will he tell us whether it is true that it was only because Britain and Italy blocked the vote of the other seven members on the Regional Development Fund that the European Parliament proposal to increase the size of the fund was accepted? Will he explain what factors the Budget Council will have before it in discussing this matter?

Mr. Judd: The hon. Gentleman's question goes to the centre of the relationship that exists between the Council and the Assembly. We have made it


plain that we do not want the financial powers of the Assembly to be increased by the back door. That must be watched carefully. It is true that the proposals that were put forward in that Council now stand, but the last word has not yet been spoken, because the final size of the budget will have to be decided in the Council, and that is something upon which we shall have very firm views to express.

Mr. Noble: When will the Council of Ministers discuss the arrangements for textile imports from the Mediterranean associates in 1979? What levels are they thinking of, and will the Minister give us an assurance that the Government will stand by the commitment that they made this year to the textile industry?

Mr. Judd: I think that my hon. Friend will agree that the Government, in the face of a good deal of pressure, have stood very firmly in favour of the multifibre arrangement, which has been laboriously and carefully negotiated with Mediterranean producers and others. We certainly hope, at the Council in December, to discuss the details of what is envisaged for 1979.

Sir Anthony Royle: Will the Minister answer the last two questions posed by my hon. Friend the Member for Mid-Oxon (Mr. Hurd)? When will the House be told the Minister's decision about using taxpayers' money as support for political parties during the elections?

Mr. Judd: The conduct of elections is the responsibility of my right hon. Friend the Home Secretary. There will be other opportunities for discussing with him that kind of domestic detail.

Several Hon. Members rose—

Mr. Speaker: Order. The question of the hon. Member for Richmond, Surrey (Sir A. Royle) did not arise from today's statement.

Mr. Roper: It was anticipated that there would be a meeting of the Education Ministers of the Nine within the Council during December. Why has that meeting been postponed?

Mr. Judd: Basically because the necessary preparatory work has not yet been completed. I think that my hon. Friend

will agree that we would be getting into a sad situation in the Community if we reached the point at which institutional demands took precedence over substantive discussion. We want to ensure that when meetings take place there is something real to discuss and that the ground has been prepared.

Mr. Dykes: Why has the important proposal for a European export bank apparently disappeared from the face of the earth?

Mr. Judd: That is an interesting question. I shall consider the matter and let the hon. Gentleman know.

Mr. Spearing: Is it riot true that we were told during our debates that the EEC had nothing to do with education? Would not the meeting of the Education Ministers have been strictly irregular? Will my hon. Friend tell us about the meeting of the Economic and Finance Council on 18th December? Will he confirm that if the Heads of Government come to some agreement next week they will, at the Council on 18th December, be concerned with R2790/1/78, and that that document at that meeting will in some form be passed?

Mr. Judd: It is our view that the European Council made its decision quite properly. Therefore, it is fully within its rights to carry out a review in December and to ascertain how best to proceed.

Mr. Marten: We are always grateful to the Minister when he tells us what is about to happen in the European Community but, on the other hand, we would like to know what has happened. May we have an assurance that Ministers will make oral statements in the House after the more important meetings have taken place? Ministers have not been doing so recently.

Mr. Judd: I can assure the hon. Gentleman that we try to make statements whenever possible and in whichever form after important meetings of the Council. That is the Government's policy. Sometimes. practicably, it is not possible. In that event we always try to put before the House a Written Answer or a written statement of some sort.

Mr. Arthur Lewis: At any of the meetings will it be possible to discuss the 47p subsidy per pound now being placed on


butter supplied to the Soviet Union? is my hon. Friend aware that among Members in the House and among British taxpayers the overwhelming majority are fed up with paying for these subsidies? It is felt that action should be taken as expeditiously as in the Ford issue.

Mr. Judd: I hope that my hon. Friend is well aware of the Government's priorities for the reform of the common agricultural policy. One of our highest priorities is to try to restrain price increases for produce, especially where there are wasteful surpluses. I am surprised that my hon. Friend has not recognised the considerable achievements that have been made in that direction by my right hon. Friend the Minister of Agriculture, Fisheries and Food.

Mr. David Price: In his statement the Minister made reference to the problems of the wine regime wtihin the EEC. How have the Government responded to the criticism from Brussels that our taxation system is geared in favour of beer and against wine?

Mr. Judd: That is not strictly relevant to the statement that we are discussing. I can assure the hon. Gentleman that the Government are as concerned as anybody else that we should have a sensible and rational organisation of the wine market within the Community. The objective of the discussions on wine next month will be to try to get supply and demand into better balance.

Mr. Fernyhough: The Minister is not able to give us a specific date when the Energy Ministers will be meeting, but will he give me an assurance that when they meet they will discuss seriously British exports of coal to the EEC? Is he aware that before we joined the EEC we were told that there would be a remarkable market for British coal? Does he accept that so far the EEC has bought far more coal from outside Europe than from Britain? When is that to be remedied? Inasmuch as we have to take in EEC vegetables, fruit and various other commodities at prices much higher than those on the world market, why cannot the other members of the EEC take our coal in return?

Mr. Judd: I fully recognise the strength of feeling in the House about coal and

the Community. To be candid, we are disappointed that more progress has not been made on an effective coal policy within the Community. I can assure my right hon. Friend that that is something to which we are deeply committed.

Mr. Farr: Will the hon. Gentleman assure the House that British interests will be properly protected when, on 18th December, two meetings will take place simultaneously—namely, the finance meeting and the meeting of the Agriculture Ministers? Will the hon. Gentleman bear in mind that after EMS comes into effect, and if the Republic of Ireland joins the system and Britain does not, agricultural trade with the Republic of Ireland valued at over £1,000 million per annum will be placed in jeopardy? Is the hon. Gentleman aware of that, and will British interests be properly protected by the two debates on the same day?

Mr. Judd: I am aware of the implications in the hon. Gentleman's question. I hope that the House is about to have ample opportunity to debate those implications in fuller detail. The Government will be listening to what is said today from both sides of the House. As for meetings of different Councils on the same day, that frequently happens, and it is not my experience that it inhibits the effectiveness of the discussion.

Mr. Prescott: Will my hon. Friend confirm that the European Parliament's demand that the Regional Development Fund be increased from 600 million to 1,000 million units of account has been confirmed by the Council of Ministers? Is not that in direct contravention of its treaty powers? Do the Government intend to oppose the Parliament at the next meeting of the Heads of State?

Mr. Judd: Before that and other aspects of the budget come into effect, the Finance Council will have to give its consent to the new maximum rates for the budget as a whole. My right hon. Friend the Chief Secretary has made it clear in the House that he does not believe that the last word has yet been spoken on that subject.

Mr. Jim Spicer: Will the hon. Gentleman give an assurance that when the Council of Foreign Ministers meets on 18th December the results of the elections held in Namibia will be discussed? At


that meeting, will consideration be given to what the European Community can do as a whole to help towards a solution of the problems that will arise for the European Community if we do not have peace and stability in that area?

Mr. Judd: The hon. Gentleman has great knowledge of European affairs and I would have expected him to recognise that the Council of Ministers is not where such issues are discussed. These issues are discussed in the context of political co-operation of the Nine, where there has been a great deal of effective deliberation about policies towards Southern Africa and our mutual interests that are at stake. I am sure that we shall watch extremely carefully what happens in the elections, which, as the hon. Gentleman knows, we do not recognise as valid.

Several Hon. Members rose—

Mr. Speaker: Order. If hon. Members ask brief questions, I shall be able to call all those who have been rising to ask questions.

Mr. Ioan Evans: Why is it that we are compelled to buy agricultural products from the Common Market when they can be obtained cheaper on the world market, yet there are large stocks of coal in Britain and coal is being imported into the Common Market from outside? That coal is being dumped. In fact, it has been heavily subsidised by other countries in the Market.

Mr. Judd: My hon. Friend is emphasising the point made in a previous question. I repeat that we are concerned that more progress has not been made on Community policy in connection with coal. We shall continue to press for progress to be made. As for the common agricultural policy, we want to cut out wasteful and costly surpluses. We also want to try to achieve better import opportunities to the Community for reasonably priced foodstuffs from outside the Community.

Mr. Spriggs: Is my hon. Friend aware that the chemical industry in the United Kingdom has failed to deal with that part of the industry which produces heavy chemicals, such as sulphuric acid? Will he assure the House that when the Ministers meet to discuss environmental problems they will do something to assist the

British people to overcome the problems that exist in Sutton, St. Helens, as a result of the Leathers chemical industry emitting large quantities of toxic acid into the air?

Mr. Judd: My hon. Friend raises an interesting point. It always seems that there is pressure from two directions. There is pressure from some people for a reduction of Community competence, while others exert pressure in favour of extending that competence. As to the discussions on environment, it is envisaged that what will happen in December will be essentially a Second Reading debate about European policies towards the environment as a whole. If my hon. Friend cares to make sure that we are fully briefed on the specific point that he has in mind, I shall see whether my right hon. Friend can cover it.

Mrs. Kellett-Bowman: Will the Minister confirm that the proposal concerning the 1,000 million units of account that were asked for by the European Parliament for the Regional Development Fund, which proposal Ministers failed to defeat, now stands as he put it? Will he also confirm that this figure is, in real terms, substantially less than was proposed for the fund three years ago, and that such transferences are absolutely essential if the regions are to take their proper place in the Community?

Mr. Judd: I know the strength of the hon. Lady's feelings on this subject. She has made them clear to me in this House and elsewhere before. I assure her that we note the strength of her argument. I ask her to bear in mind what I said earlier, namely, that there are bigger issues at stake here, affecting the whole relationship between the Council and the Assembly.

Mr. Skinner: Is my hon. Friend aware that there is no money in the Labour Party to finance these Common Market elections? Does he agree that it is wrong in principle to ask taxpayers to finance these elections for this expensive Assembly for expensive people? Would not the sensible thing be for a Minister to go across there and get the elections adjourned, if not cancelled?

Mr. Judd: I know my hon. Friend's strong views on the European Assembly, but those elections are to take place, and


if that is the case I am sure that what everyone in the House wants to see is that they take place in the best possible democratic spirit.

Mr. Hoyle: Can my hon. Friend tell me whether, during the series of meetings that are to take place, there will be a discussion on EEC directive 77/62/EEC on the advertising of public service contracts over £130,000? Is he aware that other EEC countries are not giving us the same opportunity in this connection? Does he realise that this can have a terrible effect upon hard-pressed industries such as the textile industry?

Mr. Judd: I am glad to be able to assure my hon. Friend that the last time I was in Brussels I took up this point specifically with Commissioner Davignon and made clear to him the strength of feeling in this country about what is happening.

Mr. Robert Hughes: Is my hon. Friend aware that his view that a fisheries meeting will be arranged if necessary is the understatement of the year? Does he not appreciate that the fishing problem is extremely urgent and that we must take every opportunity to try to inject a sense of realism into our Common Market partners so that they understand the strength of the British case on fishing?

Mr. Judd: We stand firm on the principles, which have frequently been put to the House, of conservation, access and quotas. We also realise that if we do not get an effective common fisheries policy, stocks might be irreparably damaged. There is, therefore, urgency. If we want to make progress which will take account of our needs, it is important that the constructive, preparatory work is done so that the formal meeting is not destined to failure.

Mr. Hooley: Can my hon. Friend say why the Council of Ministers should not discuss the illegal occupation of Namibia by South Africa? Can he also say whether there will be any discussion of the behaviour of European companies, such as Ever Ready and ICL, within South Africa in terms of the EEC code of conduct?

Mr. Judd: This is a matter of the constitution of the Community. The

Council of Ministers, as such, does not discuss wider political issues of this sort. They are discussed in political co-operation of the Nine on separate occasions. As I have said, the subject of Southern Africa, not least Namibia, has been extremely high on the agenda at all times and will continue to be until the issues are resolved.

Mr. Arthur Latham: Is my hon. Friend aware that the House, and everyone else, is often in difficulty when we discuss EEC matters, because we refer to somewhat obscure reference numbers? Does he agree that that sometimes goes for Ministers, too? Is he aware that when my hon. Friend the Member for Newham, South (Mr. Spearing) asked about document R/2790 the subject matter was not the Regional Fund but EMS? Will that be discussed on 18th December?

Mr. Judd: I am certainly used to obscure points from my hon. Friend the Member for Newham, South (Mr. Spearing). I am sorry if I did not hear correctly the reference number that he quoted. On the subject of EMS, obviously the Council will be taking any necessary steps to follow up what the European Council has decided at its meeting earlier in the month.

SCOTT LITHGOW DRY DOCK, GREENOCK

Mrs. Bain: I beg to ask leave to move the Adjournment of the House, under Standing Order No. 9, for the purpose of discussing a specific and important matter that should have urgent consideration, namely,
 the future of the Scott Lithgow dry dock at Greenock.
It is particularly important that this specific matter be discussed because of the implications for employment opportunities in an area where unemployment is already unacceptably high, not only because of the direct employment prospects involved but because shipbuilding and ship repairing on the lower reaches of the Clyde provide a means by which skilled tradesmen can carry on their trade.
This matter is particularly urgent because, under the Employment Protection Act, 50 days of the compulsory 90 days' redundancy notice has already been


served and tomorrow British Shipbuilders will be meeting in Newcastle to decide the immediate fate of this dry dock. It is the wish of the work force, and, indeed, the management at Scott Lithgow, that an independent feasibility study should be undertaken. They wish to see the suspension of the remaining redundancy period so that this study can be conducted.
Already finance has been forthcoming, through SAIMA and Strathclyde regional council, to fund this feasibility study. I believe that it is urgent that the House should debate this matter so that British Shipbuilders, when it meets tomorrow, can be aware of the views of the elected Members of this House.

Mr. Speaker: The hon. Lady gave me notice before 12 o'clock this morning that she would make application under Standing Order No. 9 for the House to debate the future of the Scott Lithgow dry dock.
I have listened carefully to the arguments advanced by the hon. Lady. As the House knows, I am directed to take into account all of the factors set out in the Standing Order but to give no reasons for my decisions. I regret that I cannot accede to the hon. Lady's request.

" THE TIMES"NEWSPAPER

Mr. Speaker: I have had two applications in connection with The Times newspaper. I received one application at 8.30 this morning and another later in the day. Naturally, I give precedence to the one that came at 8.30 this morning. Mr. Patrick Cormack.

Mr. Cormack: It just shows that it pays to get up early.
I beg to ask leave to move the Adjournment of the House, under Standing Order No. 9, for the purpose of discussing a specific and important matter that should have urgent consideration, namely,
 the crisis in The TimesNewspaper and its serious consequences.
I do not think that I have to show that the crisis at The Times is both specific and important. The most famous daily and Sunday newspapers in the world, together with supplements of equal distinction, are approaching the most critical 24 hours in their long and distinguished history. If the presses stop tomorrow there

is no saying when, or even whether, they will roll again. The crisis and its possible consequences are of incalculable importance to everyone in this country.
The death, or even the lengthy silence, of any of the papers concerned would diminish all the freedoms that we so readily take for granted. I submit that here is a matter to which the House, which depends so much on the continued existence of a healthy free press, should turn its attention. I submit that it should do so urgently, in the hope that a thorough discussion of the issues involved will make a positive contribution to the resolution of a problem that touches us all and those who sent us here.

Mr. Speaker: The hon. Member asks leave to move the Adjournment of the House for the purpose of discussing a specific and important matter that he thinks should have urgent consideration, namely,
 the crisis in The Times newspaper and its serious consequences.
I listened with anxious care to the hon. Gentleman. I am satisfied that the matter raised by the hon. Member is proper to be discussed under Standing Order No. 9. Does the hon. Gentleman have the leave of the House?
The leave of the House having been given—

Mr. Speaker: The motion for the Adjournment of the House will now stand over until the commencement of public business tomorrow, when a debate on the matter will take place for three hours.
Later—

Mr. Madden: On a point of order, Mr. Speaker. I am sure that there is widespread support for the agreement which you have just given to the application made under Standing Order No. 9 to discuss the suspension as from midnight tomorrow of The Times newspapers. However, I am sure also that you will agree that an intrinsic part of any application under Standing Order No. 9 is the urgency of the issue. Only a few hours remain before the suspension of all publications of Times Newspapers Limited as from midnight tomorrow. It would be most useful, therefore, if this House could give a considered view to those who are vitally involved in this


matter. I should be grateful if you would let us know whether you gave any consideration, in agreeing to the application under Standing Order No. 9, to the debate taking place later today, so that the House and Ministers would have a full opportunity of expressing a point of view which, one hopes, would have a favourable influence on those involved in this dispute and avert suspension as from tomorrow night.

Mr. Speaker: I am obliged to the hon. Member for Sowerby (Mr. Madden). I gave a considerable amount of thought to the question whether, if I granted the debate, I should grant it today rather than tomorrow. The House has instructed me not to give reasons for my decisions, but I can assure the hon. Gentleman that I gave very serious thought to that question, and I decided on the debate tomorrow

BILLS PRESENTED

CRIMINAL JUSTICE (SCOTLAND)

Mr. Secretary Millan, supported by the Lord Advocate, Mr. Harry Ewing, and Mr. Robert Sheldon, presented a Bill to make new provision for Scotland with respect to police powers of detention; to amend the law relating to bail and the interim liberation of accused persons: to make further provision with respect to criminal procedure and evidence and penalties; to make new provision with respect to the methods of dealing with offenders; to provide for grants to local authorities in respect of expenditure incurred by them in providing hostel accommodation for persons under supervision; and for connected purposes; And the same was read the First time; and ordered to be read a Second time tomorrow and to be printed. [Bill 35].

OFFICIAL INFORMATION

Mr. Clement Freud, supported by Mr. David Steel, Mr. Richard Wainwright, Mr. Hugh Fraser, Mr. Jonathan Aitken, Mr. Kenneth Warren, Mr. Robin Corbett. Mr. J. W. Rooker, Mr. Robin F. Cook, Mrs. Margaret Bain, Mr. William Craig, and Mr. Dafydd Wigley, presented a Bill to repeal section 2 of the Official Secrets Act 1911, to create a public right of access to official

information, and to make new provision in respect of the wrongful communication and handling of official information; and for purposes connected therewith: And the same was read the First time.

Mr. Speaker: Second Reading, what day?

Mr. Freud: On the first Friday after the Christmas Recess.

Mr. Speaker: I am afraid that I am not able to accept that from the hon. Member. He must give me a date.

Mr. Freud: 19th January 1979.
Bill ordered to be read a Second time upon Friday 19th January 1979 and to be printed [Bill 15].
Later—

Mr. Freud: On a point of order, Mr. Speaker. You may recall that when asked the date of the Second Reading of my Private Member's Bill, I asked whether it might be on the first Friday after the Christmas Recess. I did this because, as the House knows, there is no publication of the dates of the recess. It would appear that if the House were to reassemble after 19th January, having won a 400 to 1 gamble I would lose the Bill entirely, because there is no date published. Would it be possible to have the first Friday after the recess for the Bill which was first drawn in the Ballot, irrespective of the date? I should feel very badly—and I am sure the House would—if I were deprived of the opportunity of bringing in a Bill of such importance.

Mr. Speaker: I understand the anxiety of the hon. Member, but our practice is that a definite date must be named. The hon. Gentleman is quite right, of course, to point out that if the House were to come back from the recess after the date that he has given, he would be in a most unhappy state. I expect that I would be as well. I am not a gambling man, but I take the hon. Gentleman at his word that he has gambled, and I wish him the best of luck.

INDECENT DISPLAYS (CONTROL)

Mr. Hugh Rossi, supported by Mr. Michael Alison, Mr. Walter Clegg, Mr. Patrick Cormack, Mr. Richard Crawshaw, and Mr. Terry Walker, presented a Bill to make fresh provision with respect to


the display, advertisement or distribution of indecent matter and to the use of machines for the viewing of indecent pictures; and for purposes connected with those matters: And the same was read the First time; and ordered to be read a Second time upon Friday 26th January 1979 and to be printed. [Bill 16.]

MENTAL HEALTH (AMENDMENT)

Mr. Geoffrey Pattie, supported by Mr. Eric Moonman, Mr. Tony Newton, Mr. Stephen Ross, Mr. Charles Irving, Sir George Young and Mr. Dafydd Thomas presented a Bill to reduce the duration of authority for guardianship and for the detention of patients for treatment; to amend the law on restrictions on discharge of patients and prisoners removed to hospital; and to repeal section 134 of the Mental Health Act 1959: And the same was read the First time; and ordered to be read a Second time upon Friday 2nd February 1979 and to be printed. [Bill 17.]

CHILDREN AND YOUNG PERSONS ACT1969 (AMENDMENT)

Mr. Raymond Whitney, supported by Mr. Ronald Bell, Mr. Alan Clark, Mr. Edward Gardner. Mrs. Jill Knight, Mr. Ivan Lawrence, Mr. Patrick Mayhew, and Mr. Roger Sims, presented a Bill to amend the law so as to give to magistrates the power to permit children and young persons to secure accommodation; And the same was read the First time; and ordered to be read a Second time upon Friday 9th February 1979 and to be printed. [Bill 18.]

EMPLOYMENT OPPORTUNITIES (SMALL BUSINESSES)

Mr. Michael Grylls, supported by Mr. John Osborn, Mr. Michael Marshall, Mr. David Mitchell, Mr. Richard Page, and Mr. Tony Durant, presented a Bill to amend the law relating to employment; and for connected purposes: And the Bill was read the First time; and ordered to be read a Second time upon Friday 16th February 1979 and to be printed. [Bill 19.]

LICENSING (AMENDMENT)

Mr. Neville Trotter, supported by Sir Bernard Braine, Mr. Edward Lyons, Mr. Geoffrey Finsberg, Mr. Roger Sims and Mr. A. J. Beith presented a Bill to amend

the Licensing Act 1964 in relation to the grant of special hours certificates and the extension of existing on-licences to additional types of liquor: And the same was read the First time; and ordered to be read a Second time upon Friday 23rd February 1979 and to be printed [Bill 20.]

CHRONICALLY SICK AND DISABLED PERSONS (AMENDMENT)

Mr. Edwin Wainwright, supported by Mr. David Price, Mr. Alec Woodall, Mr. Peter Hardy, Mr. Allen McKay, Mr. Lewis Carter-Jones, Mr. Albert Roberts, Mr. Tom Urwin, Mr. George Grant, and Miss Betty Boothroyd, presented a Bill to make further provision with respect to the welfare of chronically sick and disabled persons; and for connected purposes: And the same was read the First time; and ordered to be read the Second time upon Friday 2nd February 1979 and to be printed. [Bill 21.]

CHILDREN

Mr. James White, supported by Mr. Leo Abse, Mr. Ian Campbell, Mr. Donald Stewart, Mr. Alec Woodall, Mr. Stanley Cohen, Mr. Harry Selby, Mrs. Margaret Bain, Mr. Hugh McCartney, Mr. Michael Roberts, Mr. Michael Brotherton, and Mr. Hamish Watt, presented a Bill to remove the legal disabilities of children born out of wedlock: And the same was read the First time; and ordered to be read the Second time upon Friday 23rd February 1979 and to be printed. [Bill 22.]

BRITISH NATIONALITY (AMENDMENT)

Mrs. Jill Knight, supported by Mr. Frederick Willey, Mr. W. R. Rees-Davies, Mr. Ian Mikardo, Miss Janet Fookes, Mr. Peter Hardy, Mr. Stephen Ross, Sir Frederic Bennett, Mr. Ian Wrigglesworth, Mr. George Gardiner, Miss Betty Boothroyd, and Mr. Andrew Bowden, presented a Bill to amend the law so as to extend to women the right to pass on United Kingdom citizenship to their children: And the same was read the First time; and ordered to be read a Second time upon Friday 9th February 1979 and to be printed. [Bill 23.]

HERITAGE AID

Mr. Michael Morris, supported by Mr. Andrew Faulds, the Reverend Robert


Bradford, Mr. Stephen Ross, Mr. Malcolm Rifkind, Mr. Richard Body, Mr. Giles Shaw, Mr. Tony Newton, and Mr. Kenneth Lewis, presented a Bill to make provision as respects historic buildings, conservation areas, housing action areas, and general improvement areas; to amend section 101 and other related sections of the Town and Country Planning Act 1971; and for connected purposes: And the same was read the First time; and ordered to be read a Second time upon Friday 2nd February 1979 and to be printed. [Bill 24.]

HOMEWORKERS (PROTECTION)

Mr. Frank R. White, supported by Mr. Mike Noble, Mr. Jack Ashley, Miss Betty Boothroyd, Mr. Neil Carmichael, Mr. Ernest Perry, Mr. James Johnson, Mr. George Robertson, Mr. Jim Callaghan, Mr. John Tilley, and Mr. Giles Radice, presented a Bill to amend the law to provide for the further protection of home-workers and for the better enforcement of the law as so amended; and for connected purposes: And the same was read the First time; and ordered to be read a Second time upon Friday 26th January 1979 and to be printed [Bill 25].

REPRESENTATION OF THE PEOPLE (AMENDMENT)

Mr. Nicholas Edwards, supported by Mr. David Madel, Mr. Robert Adley, Mr. Hugh Dykes, Mr. Michael Jopling, Mr. David Knox, Sir Anthony Meyer, Mr. Wyn Roberts, and Mr. Cranley Onslow, presented a Bill to enable electors who are away on holiday at the time of a Parliamentary election to vote by post or by proxy; to make further provision for the registration for electoral purposes of the wives and husbands of members of the armed forces; to provide for the correction of the register of electors; and for related purposes: And the same was read the First time; and ordered to be read a Second time upon Friday 19th January 1979 and to be printed. [Bill 26.]

SUPPLY OF GOODS (AMENDMENT)

Mr. Donald Stewart, supported by Mrs. Margaret Bain, Mr. Mike Thomas, Mr. Kenneth Warren, Mr. Clement Freud, Mrs. Winifred Ewing, Mr. Michael Ward, Mr. Joan Evans, Mr. lain MacCormick, and Mr. Malcolm Rifkind, presented a Bill to amend the Sale of Goods Act

1893 and the Supply of Goods (Implied Terms) Act 1973; and for purposes connected therewith: And the same was read the First time; and ordered to be read a Second time upon Friday 2nd February 1979 and to be printed. [Bill 27.]

NATIONAL HERITAGE FUND

Mr. Arthur Jones, supported by Mr. William Benyon, Mr. Arthur Blenkinsop, Mr. James Boyden, Mr. Robert Cooke, Mr. Andrew Faulds, Mr. John Hannam, Mr. Michael Latham, Mr. Alex Lyon, Mr. Eric Moonman, Mr. Timothy Sainsbury, and Mr. Julius Silverman, presented a Bill to provide for the establishment of The National Heritage Fund to be administered by trustees to assist nonprofit-making organisations including public museums and local authorities concerned with the preservation of exceptional elements of the national heritage: And the same was read the First time; and ordered to be read a Second time upon Friday 26th January 1979 and to be printed. [Bill 28.]

PUBLIC BODIES (APPOINTMENTS)

Mr. Geoffrey Johnson Smith, supported by Mr. Philip Holland, Mr. Nicholas Ridley, Mr. Nicholas Scott, Mr. Reginald Eyre, Mr. Cranley Onslow, Mr. George Gardiner, Mr. John Wells, Mr. William Clark, and Mr. John Moore. presented a Bill to regulate appointments to public bodies; to make provision for confirmation by Parliament of the appointment by Ministers of chairmen of public corporations and other boards of a commercial character; to provide for an annual Register of Offices to which appointments are made by Ministers and their holders; to limit the number of offices that may be held by a person at one time; and for connected purposes: And the same was read the First time, and ordered to be read a Second time upon Friday 26th January 1979 and to be printed. [Bill 29.]

LICENSED PREMISES (EXCLUSION OF CERTAIN PERSONS)

Sir George Young, on behalf of Mr. Anthony Grant, supported by Sir Bernard Braine, Mr. Michael Marshall, Mr. Geoffrey Finsberg, Mr. Ron Lewis, Mr. William Molloy and Mr. Clement Freud, presented a Bill to empower the courts to make orders excluding certain


categories of convicted persons from licensed premises: And the same was read the First time; and ordered to be read a Second time upon Friday 16th February 1979 and to be printed. [Bill 30.]

FREEDOM OF INFORMATION AND PRIVACY

Mr. Geoffrey Dodsworth, supported by Mr. Peter Rost, Mrs. Margaret Bain and Mr. Dennis Canavan, presented a Bill to further the full interchange of opinion in the United Kingdom by providing for greater personal access to official information and to safeguard the privacy of personal information collected and retained for official purposes; to make provision with respect to the keeping, disclosure, correction and dissemination of such information; to make further provision for the content and accuracy of certain official documents; and for purposes connected with the aforesaid matters: And the same was read the First time; and ordered to be read a Second time upon Friday 16th February 1979 and to be printed. [Bill 31.]

ACCESS TO COMMONS AND OPEN COUNTRY

Mr. Arthur Blenkinsop, supported by Mr. George Strauss, Mr. Geoffrey Rippon, Mr. Frederick Willey, Mr. Arthur Jones, Mr. John Parker, and Mr. Frank Hooley, presented a Bill to amend sections 193 and 194 of the Law of Property Act 1925; to clarify the meaning of the Commons Registration Act 1965; to grant a right of public access to open country (as defined in the National Parks and Access to the Countryside Act 1949 as amended by the Countryside Act 1968); and for connected purposes: And the same was read the First time; and ordered to be read a Second time upon

Friday 26th January 1979 and to be printed. [Bill 32.]

CUSTOMS AND EXCISE AND INLAND REVENUE APPEAL TRIBUNALS

Mr. Norman Lamont, supported by Mr. Jonathan Aitken, Mr. Leon Brittan, Mr. Nigel Forman, Mr. Malcolm Rifkind, and Mr. Timothy Sainsbury, Mr. Nicholas Ridley and Mr. Cecil Parkinson presented a Bill to establish independent appeal tribunals in connection with the administration of the Customs and Excise and Inland Revenue; and for connected purposes: And the same was read the First time; and ordered to be read a Second time upon Friday 16th February 1979 and to be printed. [Bill 33.]

HANDICAPPED AND DEPRIVED CHILDREN (ABOLITION OF CORPORAL PUNISHMENT)

Mr. Bruce Grocott, supported by Mr. Arthur Blenkinsop, Mr. Dennis Canavan, Mr. Ivor Clemitson, Mr. Robin Corbett, Mr. Bryan Davies, Mr. Robert Kilroy-Silk, Mr. Neil Kinnock, Mr. Arthur Latham, Mr. Christopher Price, Mr. George Rodgers and Mr. J. W. Rooker presented a Bill to forbid the use of corporal punishment in special schools for mentally and physically handicapped children and in community homes; and for connected purposes: And the same was read the First time; and ordered to be read a Second time upon Friday 19th January 1979 and to be printed. [Bill 34.]

STATUTORY INSTRUMENTS, & c.

Ordered,

That the draft Water Charges Equalisation Order 1978 be referred to a Standing Committee on Statutory Instruments, & c.—[Mr. Foot.]

EUROPEAN MONETARY SYSTEM

Motion made, and Question proposed, That this House do now adjourn.—[Mrs. Anne Taylor].

4.8 p.m.

The Chancellor of the Exchequer (Mr. Denis Healey): I welcome the opportunity that we have today, in the last few days of negotiations concerning the possible setting up of a European monetary system, to describe the Government's approach. I also welcome the opportunity to discover the views of the Opposition. I am sure that the right hon. and learned Member for Surrey, East (Sir G. Howe) is looking forward to telling us how he is reconciling the views expressed by his hon. Friend the Member for Oswestry (Mr. Biffen) with those of his hon. Friend the Member for Mid-Oxon (Mr. Hurd) and, not least, those of his hon. Friend the Member for St. Ives (Mr. Nott).
The basis on which the Government approach the problem is against the background that the whole of our economic policy, both at home and abroad, has one overriding aim, which is to maximise growth and employment without refuelling inflation. One of the obstacles to growth throughout the world in recent years has been the exceptional turbulence on the currency markets. This has reached unprecedented levels in the last 18 months, due to the weakness of the dollar. We want a global solution to the problem but so far there has been little disposition in the United States or Japan to consider the sorts of changes in the floating regime which might be needed, although I think that there are some signs in recent weeks that there might be some change in the Japanese and American attitude, particularly since President Carter's recent announcement and Mr. Ohira's succession to the Prime Ministership in Japan.
The question that we have been considering in Europe for the past six months is whether a zone of monetary stability in Europe could be created as a step towards a better global order in monetary affairs.
In Bremen in July, the European Heads of Government decided to ask their Finance Ministers to formulate guidelines

with a view to decisions being taken at the European summit meeting on 4th and 5th December. The annex to the communiqué issued at Bremen described the general principles of a scheme for closer monetary co-operation which would lead to a zone of monetary stability in Europe.
The essential elements of the scheme conceived by the Heads of Government were, first, that a European currency unit, based on the existing European unit of account, should be at the centre of the system and should be a means of settlement between central banks. It was also agreed that there should be coordinated exchange rate policies towards third country currencies, particularly the dollar, and elements of reserve pooling in the system, leading ultimately, after two years, to the creation of a European monetary fund. The Heads of Government also decided that the margins open to non-snake members of the system should, if those members wished, be wider than those in the snake.
A central clement in the view held by the Heads of Government at Bremen was that no purely currency arrangement was likely to operate for long unless the countries concerned could achieve compatibility in economic performance because exchange rates cannot for long be kept in stable relationship with each other if economic performance is divergent. It was also considered that, in the light of that fact, measures should be taken to strengthen the economies of less prosperous countries. It was agreed at Bremen that the Heads of Government would take decisions and make commitments on these matters at their meeting in December on the basis of the work done by Finance Ministers.
Since the Bremen meeting, there have been four months of intensive discussion among the Finance Ministers and the officials who serve them. There have been multilateral discussions in the Monetary Committee, the Committee of Central Bank Governors and the Finance Council and innumerable bilateral meetings, the number of which is increasing daily as we approach the final decision.
So far, however, there has been far too little discussion of the broader aspects of the monetary system. There has been almost no discussion about the relationship with the dollar or reserve pooling


and very little on the role of the ECU, concerted action or resource transfers to less prosperous countries. Yet the last two questions were agreed by the Heads of Government to be essential if a currency system is to work.
Both sides of the House agree that we cannot achieve greater monetary stability simply through intervention on the currency markets. There are narrow limits to the effectiveness of intervention if it takes place in the face of fundamental economic facts that are pushing currencies apart. There must be more compatibility in the economic performance of members of the system and that is why the Government have always supported concerted action to achieve higher growth and lower inflation in the Community as a whole. We succeeded at Bremen in getting commitments from the main Community countries which they carried forward to the meeting at Bonn and which have been the basis of action since then by all concerned.
It is equally essential that less prosperous countries should achieve, through the Community instruments, a net transfer of resources to themselves from the more prosperous members. The House will have seen in our Green Paper that the United Kingdom is already making the second highest per capita contribution to Community affairs and that unless action is taken quickly we are likely to be the largest single contributor, with a net contribution of about £1,000 million, in a couple of years' time. I am sorry that agreement has not yet been reached on these vital matters in our discussions.
The discussions have focused on the exchange rate regime and the rules for intervention to support it. Even there, some important disagreements remain, but important agreements have been reached on, for example, the amount of credit. On the framework of the exchange rate regime, two things have emerged clearly. First, we are not talking about a system of fixed exchange rates. The Finance Ministers have already agreed—and I am sure that the Heads of Government will endorse their view—that margins of up to 6 per cent. between currencies should be available, though it appears that only the Italian Government would wish to enter a system with a margin of 6 per cent.
It is worth pointing out that the pound has fluctuated within margins of only 2 per cent. over the past two years. A margin of 6 per cent. is quite a large margin for fluctuation. In addition to the margins, there has been agreement that realignments of currency parities within the system should take place when necessary. There have been 19 such realignments in the snake system during the past five years.
The second fact to have emerged is that we are not discussing a system which is a first step to European monetary union. We hope that it will be the first step to global monetary order. Some people think that if the European monetary system develops as it was conceived at Bremen, with a fund that includes an element of reserve pooling, central organisation of its reseources and a new reserve asset, the countries concerned will be committed to monetary union. That is far from the case.
We already have an International Monetary Fund which has an element of reserve pooling and which organises a reserve asset in the special drawing rights, but no one could claim that the IMF is regarded as a step towards a single world currency.
We are not discussing a system of fixed exchange rates or something which will inevitably lead to European monetary union. However, important disagreements remain and centre on the steps that should be taken to ensure that currencies stay within the margins unless realignments take place.
The issues around which the disagreements centre are highly technical and have been described in the Green Paper, but they are also highly important, because the way in which intervention is organised within a currency system will largely decide whether the system assists growth and jobs in the countries concerned or puts further constraints on employment and economic growth. I must tell the House that the Government would not join a system unless it was likely to assist growth and not to put further constraints on it.
In our view, if a new exchange rate regime is to assist growth, it must be significantly different from the common float called the snake. That is the view of all the non-snake countries taking part


in the discussions. The snake is not a Community system; it included Sweden at one time, and still includes Norway. Neither of those countries is a member of the Community. The snake, which has performed a useful role for its surviving members, is basically Germany, with a number of smaller countries with close economic links with Germany—the Benelux countries, Denmark and Norway. The other European countries found it impossible to stay in a system that was so centred on the deutschemark. Italy and Sweden had to leave it, France had to leave it on two occasions, and Britain left only seven weeks after joining.
I think that it would be disastrous for Europe if we were to repeat the experience of the snake and set up a system which was bound to break down within a few weeks of its being created. It would be disastrous for the countries concerned because all of them had heavy reserve losses when they left the snake on previous occasions, and it would be disastrous for the Community as a whole.

Mrs. Winifred Ewing: A little earlier the right hon. Gentleman said that next year the United Kingdom will be the largest contributor unless action is taken quickly. What action has he in mind?

Mr. Healey: I shall come to that matter in a moment. However, I can tell the hon. Lady now that one of the areas where action is most urgently required is in changing the current operation of the common agricultural policy. The most important single objective in that context is to freeze the prices of all commodities that are in surplus. The other area in which action will be required in the near future is to produce a system contributing to the Community budget to supplement the present"own resources"system which will shortly expire by a system which is progressive rather than regressive in its effect.

Mrs. Elaine Kellett-Bowman: rose—

Mr. Healey: I still have a great deal of ground to cover, and it will be helpful if I am able to speak for a few minutes without having to give way to successive interventions.

The Prime Minister (Mr. James Callaghan): My right hon. Friend is not even being controversial.

Mr. Healey: I hope that I am not being controversial.
The problem about a snake system now is likely to be more difficult than it was when the snake was first set up six years ago. There are very much wider gaps in the inflation performance of the various countries now than there were then. The inflation differentials last time were under 100 per cent. At present the gap between Germany and Italy, for example, is the gap between one and six. At that time European countries were not subject to the variable impact of the weakness of the dollar.
One of the main causes of turbulence in Europe in the last 18 months has been the fact that the weakness of the dollar has had a different effect on the deutschemark as a currency of refuge from the effect which it has had on the other European countries, and consequently has tended to drive the deutschemark apart from the other European countries.
The differences between the situation now and the situation then are more serious for other members of the Community than they are for Britain. I should like to give a few examples. Of the nine members of the Community, only Ireland has higher growth than Britain. Five countries have higher unemployment than Britain, namely, Belgium, Ireland, Denmark, Italy and France. Three countries have higher inflation—France, Italy and Denmark. Five countries have balance of payments deficits of a smaller or larger extent—Belgium, Luxembourg, Netherlands, Ireland and Denmark. Therefore, there are wide disparities between the performances in the major areas that affect exchange rates—much wider than we had at the time when the snake was set up.
It would be a little absurd if all that emerged out of these discussions was something that in all respects was the same as the snake. It has been open to any European country to join the snake without a great deal of discussion at any time in the last six years. If that were the only issue, it would be difficult to know what we have been meeting about so continuously in Brussels, Luxembourg and elsewhere.
The essential difference which we would require in a new exchange rate regime compared with the snake is that it should impose similar obligations on the stronger countries and on the weaker countries. That is much easier said than done. Bretton Woods, as a system. was, in theory, supposed to impose the same obligations on the strong as on the weak, but it never operated in that way. What we have been trying to devise is a way of constructing an intervention system which not only imposes an obligation on the stronger countries, but gives them an incentive to take action which otherwise would be lacking.
In this search for an intervention system which will impose obligations to act on the stronger countries, we are strongly supported by the French, the Italians and the Irish. President Giscard emphasised this in his press conference last week when he said that the essential difference between the proposed system and the snake must be that the new system must impose obligations on the strong as well as on the weak.
The means which we have sought to achieve this objective—and I apologise for using these revolting technical terms—is to use a basket of currencies formed by the ECU as an indicator of divergency and then to impose an obligation on the divergent currency to take action to bring itself back within the margin without compelling the country at the other end of the parity grid to lose its reserves at the same time. That was the great weakness from our point of view of the parity grid system. We also believe, with Italy, that there must be in any new system special treatment of debts incurred by a non-divergent currency country if the divergent currency uses its currency for intervention. In other words, there must be a system by which what we call"innocent debt"can be frozen.
We regard these elements in a new exchange rate regime as of critical importance. Indeed, we could not join a system which did not include these elements. But we do not believe that these changes in the exchange rate regime by themselves will be sufficient. There must also be a commitment—a commitment promised at Bremen—to concerted action to achieve lower inflation and higher growth within the countries which are members of the system and parallel measures to correct

the current perversity in the flow of resources through the Community mechanisms, particularly the CAP and the Community budget. It is on these issues that the disagreement is centred and has yet to he resolved. But discussions are proceeding in almost all the capitals once or twice a day at present to see whether the disagreements can be overcome.
Against this background of our approach, I wish to deal with some of the arguments against setting up an exchange rate regime at all in Europe. There are some people in all parts of the House, and indeed among all sections of opinion in the country who would argue against an exchange rate regime even if all the conditions I have described were met—either because they believe that any exchange rate regime would be bound to restrict growth, or because they believe that any regime would lead to an unacceptable loss of freedom by those participating in it.
I disagree on both these points. In explaining why I disagree, I hope that the House will allow me to say a few words about the controversial matter of simulations which have been carried out on econometric models to try to illustrate the possible consequences of alternative courses of action.
The simulations use econometric techniques based on very uncertain theories to guess what will be the consequences if this country, as a result of joining the system, had a higher exchange rate than it would have had if it had not joined the system. The conclusions drawn by these methods in themselves are fragile, but it is difficult to be sure whether they are even relevant. First, there is no certainty that membership of a system such as I have described would lead to us or any other country having higher exchange rates than it would have had without being a member of the exchange system. Some who are involved in discussions see the exchange rate regime as offering them an opportunity of depreciating with less political and economic cost than would otherwise have been the case.
Even in a floating regime, exchange rates are not bound to move so as to maintain competitiveness. The best example of that lies in experience in the Netherlands which, because of the improvement in its balance of payments


due to North Sea oil, found that it was undergoing an effective appreciation against the deutschemark through a period of years in which it consistently had a higher inflation rate than the deutschemark.
Lastly—this is a more controversial statement—I believe that the advantages of using depreciation to maintain price competitiveness in foreign trade are far less obvious and certain than was once believed. I believe that the price effect of depreciation feeds through faster than it used to do—I think myself, as I said at the Mansion House, because the inflationary effect of the oil price increases and what followed has made people anticipate inflation much more than they used to, at every level, from the housewife to the leader of a great industrial firm.

Mr. Bryan Gould: Will my right hon. Friend give way?

Mr. Healey: I should like to finish this point. I know that my hon. Friend is passionately interested in this subject. and I look forward to giving way to him shortly.
First, as I say, I think that the price effect feeds through much faster than perhaps it used to. The only way of stopping that from feeding through faster is through a draconic pay policy which permits the system to enforce a continuous movement from wages into profits. One thing that I have never been able to understand—I say this to my hon. Friend—is why Socialists should support a system which involves a continuous transfer from wages to profits. It may be inevitable sometimes that we have to depreciate. I cannot see why one should welcome it.

Mr. Gould: Having already, in the course of his speech, disowned the Treasury model, would my right hon. Friend also disown the excellent study made in his own Department earlier this year of the effects of depreciation, which showed that, contrary to some of the conventional wisdom, depreciation and its benefits persist in the economy for four to six years, almost irrespective of the domestic policies pursued?

Mr. Healey: With respect, I did not draw that conclusion from that excellent

study—by which I was so impressed that I asked for it to be published in the economic progress report. If the House wishes to treat these subjects seriously—I know that my hon. Friend would agree with me on this—and if we are to expose some of the theoretical conceptions which lie behind policy and may contribute to the making of policy, I think that the House and the public will have to accept that many of these conceptions are extremely fragile and uncertain.
I think that I made the point in the House the other day that there was a paper of this nature circulated, it is now known, to members of the Cabinet. But when it fell into the public domain, it was described, in The Times newspaper no less, as embodying the advice given by the Chancellor of the Exchequer to his colleagues on what they should do about the EMS. It was nothing of the sort. If hon. Members or any other people persist in treating the attempt of extremely intelligent and experienced theorists to think through the elements in problems as embodying the final decision of Government on political matters, I would become an opponent of open government.

Mr. Hugh Dykes: As the right hon. Gentleman is being so kind to his hon. Friend the Member for Southampton, Test (Mr. Gould) does he assume that his hon. Friend's proposal of some months ago that the pound should be worth only $1·50 is correct, or is that a fragile proposal as well?

Mr. Healey: I shall try to take the question seriously. Of course, I do not agree with my hon. Friend on that—if he ever expressed that view. I do not know whether he ever did that. But I have explained that I think that the view which was conventional among practical as well as theoretical economists until a few years ago, that depreciation was a way of making up for a loss of price competitiveness or, indeed, a loss of competitiveness in other fields, certainly today contains far less truth than then it was thought to contain.
There is another particular disadvantage about depreciation as a tool of policy. One can see, in our country and in others, that it is, in a sense, a soft option, in that it induces industry to move steadily down market rather than to maintain its profitability by moving


steadily up market. The best proof—I have made this point elsewhere to my hon. Friend the Member for Southampton, Test (Mr. Gould)—that some of the prophecies of doom derived from theoretical models by econometricians are mistaken is the experience of Austria in recent years. Austria is not a member of the snake, but it has in recent years made it an objective of policy to keep the value of its currency related to the value of the snake. It has done so because it has very close economic links with Germany, like the other snake members. But, in spite of that, it has achieved a higher growth rate than any member of the snake, a lower unemployment rate than any member of the snake, and a rate of inflation about the same as that in Germany. I am not saying that is because of the link. I think that it is because Austria has a Labour Government. But the fact is that it has been able to achieve that while having this link.
The Government believe that there are immense advantages in a stable exchange rate, but a stable exchange rate depends on the appropriate economic and monetary policies in the countries concerned. It cannot be achieved by juggling on the exchange markets, by intervention. Intervention can smooth movements in exchange rates. Interventions cannot succeed and have never succeeded in sustaining a particular rate unless the underlying economic factors supported it and unless those factors were buttressed by the appropriate policies.
There is another factor here. No country can guarantee to achieve stability in its exchange rate or determine its exchange rate in any way, even by the best domestic economic and monetary policies, because the currency of every country today is influenced by the movements of currencies outside its borders. The weakness of the dollar, for example, has in recent months pushed the deutschemark far above the level which would be justified by any differences in the economic performance of Germany during the period concerned.
No country is master of its own exchange rate. We can achieve a degree of mastery in so far as we pursue appropriate economic and monetary policies. But we do not have freedom here. We have no independence to surrender. If we want

exchange rate stability, the question that we have to ask in deciding whether we join the exchange rate regime in a European monetary system is whether we can get more stability at less cost inside the system than outside the system.
I must tell the House that unless there are movements on the part of some of those concerned in the areas that I have just described, I do not believe that a system so much like the snake as seems now to be in prospect would give us advantages commensurate in any way with the disadvantages which we would risk by joining it.
On the other hand, if the changes which I have described, and for which the Government are pressing, are made in the exchange rate regime in the next few days —and many other countries besides ourselves are pressing for these changes—if the Heads of Government were to agree next week on the necessary commitment to concerted action and resource transfers, and if, therefore, the Government decided that it would be in Britain's interest to join the exchange rate regime, then—I was asked this question at Question Time the other day—the Government would submit their view to Parliament for debate, and, if necessary, a vote, before the regime came into operation at the beginning of January.
I hope that that allays the anxieties which some of my hon. Friends, and indeed some of my right hon. Friends, have expressed.

Mr. J. Enoch Powell: When the right hon. Gentleman says"before the regime came into operation ", does he mean before this country is committed to participate in it or after we are committed but before it begins to operate?

Mr. Healey: If the House were to take a view that was different from that of the Government, on a matter of this importance, it would indeed be a very serious matter. There is not the slightest question but that the Government would be guided by the views of the House. But I hope that the right hon. Gentleman, who is a stickler for constitutional precedent here, is not suggesting that the Head of the British Government should go to an international conference and enter into negotiations and reach conclusions ad referendum to votes in this House. I think that


that would be a total breach of all historical precedent. If the right hon. Gentleman was suggesting it, he would have difficulty in reconciling it with his views on many other issues of a constitutional nature.
I have made it absolutely clear that the essence of democracy in this country is that the Government repeatedly have to take decisions on many matters and submit them to the view of the House. If the House rejects their views, they either resign or change their policies.

Mr. Douglas Jay: Is my right hon. Friend aware that, when Britain proposed to join Bretton Woods and the International Monetary Fund, legislation was introduced to enable it to do so'? Does he agree that the same must apply to this system?

Mr. Healey: The role of legislation in this matter will be discussed by my right hon. Friend at the end of the debate. Various types of legislation might be involved. There is both Community and domestic legislation. A European monetary system, with all its aspects, would require legislation of both kinds.

Mr. Jay: Both?

Mr. Healey: Yes. I shall be coming later to the Community aspect of the problem.

Mrs. Barbara Castle: Will my right hon. Friend give way?

Mr. Healey: No, because—

Mrs. Castle: It is on the Community and domestic legislation aspect. If my right hon. Friend is telling us that under the new Community system the Government must agree to go in and negotiate and commit their good will and reputation before the House can be consulted. does it not follow that, unless control by the House is to be made a mockery, when the matter comes back it should be determined on a free vote and with no issue of confidence in the Government?

Mr. Healey: Of course, I do not agree about that. Nor would any Government who tried to conduct affairs in the interests of the country.

As I have made clear, at present all the countries concerned are in conversation with each other and the negotiations are proceeding. I imagine that they will come to a conclusion on Monday or Tuesday.
Whether or not Britain joins the exchange regime, we remain vitally concerned with the wider aspects, as they were described at Bremen, of the European monetary system. So far these wider aspects have been barely touched on in the Community's discussions. However. Britain is determined to play a full part in the negotiations on these wider aspects which must follow in the coming months and years. These aspects are: concerted action for a higher growth and lower inflation; resource transfers to the less prosperous members of the Community relations with the dollar and other currencies outside the Community; credit mechanisms: the role of the ECU, not only as a reserve asset, but as a filial means of settlement—even that has not yet been agreed—and we shall be deeply concerned with any proposals to realign exchange rates within the exchange rate regime.
I am confident that our partners will agree that we should play a full role in any discussions on these wider problems. In that event, as the Prime Minister said, Britain would not act as a dog in the manger if others wished to establish an exchange rate regime for themselves. I would expect Parliament to treat in the same spirit any Community regulations which came before it for scrutiny as a result of others setting up an exchange rate regime within the Community framework. We are likely to have an opportunity of debating such regulations before Christmas.
I have tried to explain the current state of the negotiations and the Government's concern in these remaining days of discussion. There are important areas of disagreement left on the exchange rate regime which have so far hardly entered into international discussion. We shall return to this problem in the House when conclusions have been reached by the Heads of Government next week and when the British Government have been able to form a view.

Mr. Peter Hordern: On the question of resource


transfer, what is the Government's attitude towards the dismantlement of exchange controls and the free movement of currency between one member country and another?

Mr. Healey: The House knows very well that the Government believe in moving with glacial majesty, as I once described it, in adjusting their exchange controls. We have made some movements in the last year. I propose to move cautiously in this area, guided by the tragic experience of the Conservative Government, who, under urging from similar sources, introduced the credit and competition control system and then found that almost the whole of the banking system blew up in their face. This matter has not been discussed among us in relation to the European monetary system. In so far as the weakening of exchange control led to a resource transfer from this country to other countries, I assure the House that I should be solidly against it.

Mr. Paul Channon: Before the right hon. Gentleman sits down, will he tell us about the implications for the link between the Irish pound and the British pound should Ireland decide, as seems probable, to enter the system on 1st January?

Mr. Healey: I am naturally reluctant, as all Governments are, to discuss hypothetical questions. I assure the House—

Mr. Channon: This hypothetical question is important.

Mr. Healey: Many hypothetical questions are important. However, I find it difficult to conceive a situation in which the Irish pound broke its link with the British pound which did not require both Governments to introduce exchange controls. This has been discussed between the two Governments and we have both reached this conclusion.

Mr. John Nott: How ridiculous.

Mr. Healey: The hon. Member for St. Ives says"How ridiculous." He is the Opposition Front Bench Member who the other day suggested that our objective should be to achieve a common currency based on the deutschemark. How much more ridiculous than that can one get?

Mr. Peter Tapsell: Before the Chancellor leaves the earlier point about exchange control relaxation, to which the Government are committed under the EEC arrangements, I should point out that this is not the first occasion on which he has quoted the Green Paper on competition and credit control as an argument for not moving on ex change control relaxation. But that Green Paper had nothing to do with exchange control.

Mr. Healey: I was making the point that the competition and credit control regime was recommended to the Conservative Government by precisely the kind of people who are now recommending a hugger-mugger abolition of exchange control. I have made clear on many occasions—I have said it again now—that the Government are moving on the exchange control front. We introduced two sets of relaxation last year. We may well introduce more relaxation at the appropriate time. However, we have no intention whatever of being pushed into unwise and imprudent courses by a doctrinaire argument either from the Opposition or from sources outside the House.
I hope that the House has followed me so far. I know that on some issues there is deep disagreement. For example, I know that my right hon. Friend the Member for Battersea, North (Mr. Jay) disagrees with my argument about depreciation. But there is one point which the House should bear in mind as we approach these final stages. It does not appear at the moment as though firm decisions are likely to be taken next week on anything except an exchange rate regime, if indeed decisions are taken on that matter. I hope that it may be possible for unanimous decisions to be taken. But, as I have explained, there are wide differences between the countries concerned—differences which have still to be removed.
The House must also recognise that an exchange rate regime, though it might, if properly constructed, make a contribution towards our common objectives, will not of itself achieve those objectives. Achieving our objectives, which are steady growth and falling unemployment with falling inflation, will require us to adopt and stick to the appropriate domestic policies. The Government have made clear on many occasions that they are


giving overriding priority to the conquest of inflation. We believe that a stable pound—we have achieved that stability in the last two years—can make a useful contribution to the conquest of inflation. We shall remain dedicated to these objectives whether or not we join the exchange rate regime.

4.49 p.m.

Sir Geoffrey Howe: The Chancellor ended his speech on a more appropriate note than he began. The House will remember that at the outset he launched into an invitation to me to attempt reconciliation of a diversity of views. He will know, of course, that on this matter—as he acknowledged at the end of his speech there is, and has been, a widespread variety of views on both sides of the House. That was very well evidenced by the interventions which he had to meet from his right hon. Friends the Members for Blackburn (Mrs. Castle) and Battersea, North (Mr. Jay).
I hope that at some stage during the debate someone on the Government Front Bench will tell us with more clarity than did the Chancellor exactly what, if any, legislative implications there will be—both domestic and foreign—from each stage of progress towards this scheme.
The Chancellor recognised that we are here dealing with two distinct issues, although they have become closely related to each other. First, there is the question of the relationships which should prevail between this country and the Community, of which, although it is sometimes hard to believe, we have now actually been a full member for five years. The second issue is how to restore and maintain confidence in the long-term value of the money which our citizens use both in this country and abroad. These issues have inevitably become related under the heading of"European monetary system"because of our membership of the Community and our close commercial involvement with the Community.
When we consider the question of the future of money, there should be no doubt whatever about the increasingly general understanding throughout the House of the importance of the battle against inflation. Unless we are able to restore faith in the value of money, as a store of money and as a transaction for money,

both nationally and internationally, protectionism spreads, transaction costs increase, confidence declines, distortions creep in and all the trading systems inside our country and overseas become destroyed.
The second aspect, which the Chancellor touched on at the beginning of his speech, is the importance of restoring more stability to the international currency markets. We have lived through a period of exceptional turbulence. When the Prime Minister, some 12 months ago, began addressing himself to the importance of restoring stability in the international currency markets, he was absolutely right. The pity was that he was not able to participate at an earlier stage in the initiatives which then came from the French and German leaders to deal with this matter.
It is appropriate that we should be addressing ourselves to this problem inside Europe, because however right it is to set about the construction of greater order internationally—my right hon. and noble Friend Lord Soames directed attention to this in the other place yesterday—and we should do nothing which is incompatible with that, to do it on the world stage and on a world scale will be very difficult. The collapse of Bretton Woods, the subsequent collapse of the Smithsonian agreement and the present uncertainty about the outlook for the dollar—although one hopes it will achieve stability—make it sensible to address ourselves to this question within the European context.
This is also sensible, because we are committed by treaty to membership of that organisation. The creation of a common market in Europe involves not just the creation of a free trade area or a customs union, not just the removal of non-tariff barriers, but also the establishment of the missing element in a common market—as far as possible, stability and interchangeability of money throughout that market. It is, therefore, entirely right that this subject should be on the agenda in a European context.
I should like to say a word about the way in which the House should look at the question of the European context in which we consider these questions. Our membership of the Community, as all of us know at greater or less cost, has been the subject of debate for 10 years both


inside and outside this House, of negotiation by successive Governments of both parties and of three rounds of negotiation and renegotiation, endorsed in successive stages by treaty and legislation in this House and, finally, by referendum.
I venture to suggest that, although we retain our disagreements from the past, it is now high time that we agreed to go forward in our relationships with the European Community from the fact that it has been endorsed in that way. It has been possible for all our partners in Europe, having come together at different stages and in different ways, to feel no difficulty about accepting this kind of positive approach to the European institutions. It is a matter of great regret that so many Labour Members have by their negative and obstructive attitudes positively encouraged the belief in the people of this country that at this time it makes sense to think in terms of rerunning history backwards and unstitching that which has been created.
Of course, there will be anxieties and difficulties. It is for that reason that on behalf of my right hon. and hon. Friends I should like to welcome some of the important passages in the Green Paper. Paragraph 13, under the heading"An All-Community Approach ", reads as follows:
 The Government believe that its approach is not only in the best interests of the future of the European Community, but also reflects what should be the true spirit of Community action.
The same thought is echoed in paragraph 33, which states:
 It is wholly appropriate that we should do this within the European Community to which we belong.
" Hear, hear ", because that represents a recognition of reality from which we ought to be addressing ourselves to these questions.
I must say that it is a great pity that the Government, in their relationship to the Community since the referendum was concluded, have not stated that position in those terms more clearly before now. In a sense, it is for that reason that, although the Prime Minister was first in the field in concern about international monetary stability, to his own irritation, I dare say, the European ball was picked up by our French and German

partners without his having been a member of the three-quarter line. He has only himself and his colleagues to blame for the fact that we have been so nearly excluded from the early stages of these initiatives.
Just as the peoples of Rhodesia are probably paying a very high price for the Foreign Secretary's latent ambitions for membership of the Labour Party's national executive committee, so the people of the United Kingdom will have paid a high price for the way in which so many members of the present Administration—I think of the Secretary of State for the Environment, the Secretary of State for Energy and the Minister of Agriculture, Fisheries and Food—have struggled to outdo each other in their anti-Europeanism, in a kind of primary campaign for the leadership of a future Labour Opposition. I can understand that Labour Members are embarrassed by this, but this is the reality. The conduct of their relationship with the European Community has done great damage to the interests of the people of this country.
I wish the Chancellor well in this respect, in his endorsement in this Green Paper under his signature, of these firmly pro-European commitments. I hope that he has not jeopardised his own chances of succeeding to the leadership of the Opposition in due course. The Chancellor has every reason to worry. The doctrine of collective responsibility in this Cabinet has been wearing very thin indeed on this and on many other issues. If the Chancellor wishes to preserve his opportunities for the future at all, I suggest that he would be very wise to get each and every one of his right hon. Friends to countersign this Green Paper in quadruplicate in order to do something to re-establish collective responsibility within this Cabinet.

Mr. George Cunningham: Does the right hon. and learned Gentleman accept and acknowledge that there are many prestigious people in the Community who are not remotely anti-European, and who are extremely pro-European, but who are extremely doubtful about the desirability of EMS even in the modest form in which is has been proposed?

Sir G. Howe: The hon. Gentleman is absolutely right. What I am saying is


that when one considers this question—this is true on both sides of the House—one should approach it starting from the fact that we are members of the Community, have been so and will remain so.
On that basis, I endorse unreservedly the objective of establishing a zone of currency stability in Europe with the main purpose of reducing inflation and finally eliminating it. Of all possible foundations for sustainable growth, that is the most important.
As the Chancellor said, there are a number of different ways in which we could drive towards that objective in theory. There is the concept of going all the way to a European monetary union. That is the way which the President of the European Commission, Mr. Roy Jenkins, describes as the"long jumper's leap"into monetary union.
The alternative objective is of moving toward a single European currency, rather along the lines of denationalising money and allowing the currencies to compete with each other, or by establishing the Europa and allowing it to compete with an imposed discipline on the national currencies. My hon. Friend the Member for St. Ives (Mr. Nott) has discussed this with good sense and has pointed out that it has one advantage. It reminds us that one of the objectives of having currency stability in Europe is to benefit ordinary people in their ordinary transactions and not just central hankers, Ministers and Chancellors.
The third way is by proceeding along lines of a currency linkage as proposed in this scheme. The first two—the EMU and the competing currency method—are not in the end very different, because both involve the establishment of a single currency and logically therefore a single central bank and in the end a single monetary policy. Undoubtedly, if one proceeds in that direction, there are substantial advantages in having a unit of that kind, governed in that way. One sees this in the United States. It depends on the right facilities for the transfer of resources with a sufficient variability of pay levels, for example, in different parts of the currency unit, and mobility of labour throughout the currency unit. In theory, that is a legitimate objective.
If that is to be established in that way, one will need a willingness to accept the establishment of important, new and truly supranational institutions. The achievement of all that seems to presuppose a degree of economic, social, cultural and even linguistic coherence and unity which does not yet exist, and which may or may not develop. I prefer not to speculate on the time scale.
On the third method that I have mentioned, one should not overlook an important element in this approach to a common exchange rate system, which is the system now on offer to us. Implied in those proposals should be a growing freedom to transact and convert currency through a wide currency area. That is a legitimate aspiration, as is the concept of one passport for all citizens of the EEC. We should not address ourselves simply to the problems of economic and financial technicians. It is important, if we can achieve it, for the ordinary business man and the ordinary citizen to get a growing right to transfer currency across frontiers. For that reason, we look very critically at the Chancellor's continued"glacial majesty ", as he chooses to call it, in his reluctance to contemplate any substantial relaxation of exchange controls.
Freedom to transfer currencies in that way should not be inhibited between economies that are confident of their success. It does no economic good to lock money into our economy. That does not promote investment, employment and prosperity in itself. Those objectives depend not on locking money in but on creating the opportunities to enable money to be used fruitfully to create wealth. The preservation of the entire apparatus of exchange control is a bureaucratic hallmark of a society that has no confidence in itself and in its own economic management. What is more, it is contrary to the Treaty of Accession.

Mr. Healey: The right hon. and learned Member for Surrey, East (Sir G. Howe) has just made a remark that is rather insulting to the French Government and to the last Conservative Government, of which he was a member. Does he really believe that the operation of exchange control of itself denotes lack of economic confidence? If so, why did the last Tory Government operate it? Why did their Conservative predecessors operate it for


most of the period since the war? Why do the French Government do so now?

Sir G. Howe: Many Governments operate exchange control in different ways. I assert that it is in itself undesirable, if one can get away without it. Of course, there are difficulties about the speed and the timing of dismantling the apparatus of exchange control, but nobody setting out to design an ideal economy would design the complex machinery of exchange control that we have now.
At a time when North Sea oil is giving growing strength to our currency and economy, there should be no doubt that we should move steadily towards more freedom and more relaxation of exchange controls. To move in the opposite direction, as the Chancellor appears to visualise with some equanimity on the relationship between this currency and that of Ireland, would be a most disturbing conclusion of these proceedings. The currency union between ourselves and Ireland has existed for a very long time, and it would be a tragic consequence of the present negotiations if Ireland and ourselves were to be divided by an immense apparatus of incredible and exceedingly complicated exchange control.
In considering the legitimacy of a currency relationship of the sort described here, some people would decide it simply on the basis of a view of principle, in favour of free floating exchange rates, on the one hand, or fixed exchange rates, on the other.
I was interested when the Chancellor spoke of this. He made frank confessions about the extreme fragility of the Treasury model, the secrets of which have been allowed to burst forth. There have been many other occasions on which the Chancellor did not take the House into his confidence about the fragility or unreliability of this model—for example, when it produces some conclusion or forecast which seems, for the moment, favourable to his economic policy. He does not hesitate to trumpet those conclusions abroad with great triumph. I hope that he will have a great deal more respect for the fragility and uncertainty of his model in the future.
I am sceptical of taking a fundamental principle view of the question of free floating or fixed exchange rates There is an infinite variety between"free float-

ing"and"fixed"exchange rates. We have free floating, clean floating, dirty floating, fixed, adjustable, crawling. What is more important, the movement of opinion between the fixed exchange rate and the floating exchange rate is a matter of fashion. At one moment the grass looks greener on the other side of the valley. There was a period, when Bretton Woods was moving towards its conclusion, when everyone was attracted by the idea of a free floating system. Now that we have had some years of experience of that, there is a swing of fashion back towards fixture.
The reality is that either of them can be mishandled and mismanaged, particularly by national politicians, so as to cause them to disintegrate. We need a set of rules applying nationally as well as internationally which will be respected, and which are designed to eliminate inflation within the national boundaries and to secure as far as possible stability between national currency units.
The Chancellor, better than most people in this House, should understand the value of rules and disciplines of that kind. It was only when his economic policy was eventually subjected to discipline imposed by the IMF that he began to regain control of this country's economy. I can understand why he is increasingly attracted to the scope for discipline in the European monetary system.
Certainly we are attracted in principle to the scheme for one major reason. If well designed, it would commit this country to a standard of monetary discipline, including a firm commitment to the elimination of inflation, of a style which has served West Germany well. There should be no reason why a British Government, committed to the conquest of inflation and to the restoration of monetary discipline, should be unwilling to accede to a scheme of this kind. That is one substantial answer to those hon. Members on both sides of the House who wish us to retain a freedom to float.

Mr. George Cunningham: But the test of whether the right hon. and learned Gentleman really means what he is saying is when he goes on to say whether, if it is not well designed, he would be willing to accept for this country the unfortunate consequences of a European


policy which was forced upon us because we were part of a very unified Europe. At the time when people are prepared to say"We accept bad consequences, because although we do not agree with the policies at a European level they have been forced upon us ", then, and only then, surely, are they being truly European. I think that the right hon. and learned Gentleman would agree that this country—the same is true of France, Germany and all the others—is not yet ready to accept bad consequences of unification. People accept it only because they believe that there will only ever be good consequences.

Sir G. Howe: I think that the hon. Gentleman is getting the time scales mixed up. With this system, we are addressing ourselves to a proposed set of new institutions and rules designed specifically for monetary stability. As the Chancellor has explained, it is necessary for us to decide whether this scheme will be well enough designed and durable enough to produce advantages if we go into it. That is the question that we are discussing. When one has an option at this stage, one will not join simply because it is there.

Dr. Jeremy Bray: rose—

Sir G. Howe: If the hon. Gentleman will forgive me, I must get on.
The point is that if one has any kind of floating system, and it is accompanied by the right monetary policies, one can be confident of its success. But if it were accompanied by the policies advanced by, for example, the hon. Member for Southampton, Test (Mr. Gould), who, I understand, would regard downward floating as in itself a worthwhile prescription, one could have much less confidence. For that reason, I am disposed to welcome the way in which the Chancellor has described this part of the monetary system as well.

Mr. Gould: I should perhaps intervene to make the point that I have no particular attachment to the principle of floating, but if we are to fix exchange rates we should fix them at a competitive level, as the IMF required us to do in the letter of intent. That is one undertaking

we gave to the IMF that we have not maintained.

Sir G. Howe: That is one of the matters involved in the present scheme. The virtue of the scheme which appeals to the Opposition is that it involves a commitment by the Government to a pattern of monetary discipline which, if properly designed, we would entirely commend. In paragraph 45 of the Green Paper, the Government say:
The Government for its part has made it clear that it does not regard exchange rate depreciation as a solution to the economic problems still facing the UK.
On the same point, paragraph 36 says:
 Membership of the scheme would also have implications for monetary management which is an essential weapon in the Government's armoury against inflation.

Mr. Healey: The right hon. and learned Gentleman is perhaps misunderstanding the reference to monetary management. What the Green Paper makes clear is that it can have bad as well as good effects. The fact is that membership of the snake has compelled the German Government to lose control of their money supply in recent months. That is why the chairman of the Bundesbank, Dr. Emminger, has made some very critical remarks about the snake and about a possible EMS. It by no means imposes monetary discipline; it may impose monetary indiscipline.

Sir G. Howe: The Chancellor is dealing with one aspect—it is a question to which I shall come in a moment—the necessity for parity changes within the system. [An HON. MEMBER:"That has nothing to do with it."] It has indeed.

Dr. Bray rose—

Sir G. Howe: I propose to comment on only two or three aspects of the system which seem to me to be the most important. First, by what they say in the Green Paper the Government are committing themselves to the prospect of exchange rate stability achieved by increasingly firm monetary discipline in this country. In that sense, so that we may all borrow greater effectiveness and skill in that way from the most successful of our European partners, one entirely welcomes the prospect.
The most important elements about which one has some questions for the


Government are as follows. Which is to be achieved first—exchange rate stability, or the conquest of inflation? We want to achieve a stable monetary system. We want to continue our successful attack on inflation. The Government's position seems to suggest that they are anxious to continue working against inflation for some time yet, to bring about convergent inflationary peformances, to get their own inflation rate down before they are prepared to accept the consequences of joining an exchange rate arrangement of the kind set out here.
It should be possible—this is certainly the basis on which the other countries are approaching the matter—to work towards both objectives together, so long as one accepts that there are bound to be parity changes within the system when it comes into existence. Therefore, the Chancellor is right in saying that he was talking not about a system of fixed exchange rates but about a system of more stable exchange rates, which in the early stages, as we move toward convergence in our inflation rates, will inevitably involve some changes in parity between the member currencies.
It is about that point that we should be concerned. Have the arrangements for those inevitable parity changes been properly thought out? I believe that it is possible to move on both fronts together, if we are committed first to a clear pattern for the United Kingdom of a progressively tightening monetary discipline. Of course, that discipline cannot be tightened overnight—no hon. Member on either side of the House has suggested that at any stage—but we should have a firm commitment, to be pursued over several years, to declining rates of monetary growth, leading to the prospect of reducing inflation in this country.
If we have that on the one hand, we need to have on the other hand proper and workable arrangements for the parity changes that will inevitably be necessary during the transitional period. They should be undertaken—I think that the hon. Member for Farnworth (Mr. Roper) said this in his evidence—with the minimum of formality, certainly with the minimum of spectacle and drama. They certainly should be possible with sufficient frequency to avoid the forces that in the

end destroyed Bretton Woods, but not so often as to destroy the credibility of the main commitment to increasingly stable and non-inflationary economic performance. In other words, the system should be so designed that exchange rate changes within it take place instead of, rather than after, expensive intervention. That is where the Government should be seeking to secure assurances.
I do not propose to discuss the comparative merits of the grid and the basket, because it is a matter of intense technicality. I merely ask the Chancellor to reflect on this. There must be a degree of unreality in concentrating too much on the establishment of the right theoretical system if the intention is to make the deviant white sheep currency—the one that is appreciating or more attractive as a refugee currency—take action beyond the extent to which it can credibly be required to do so. I understand the arguments, but the theoretical system should not be pressed too far.
Therefore, I hope that before the Government reach any conclusions on the matter they will tell us more about the arrangements that they have in mind for parity changes within the system during the transitional period. Some people have suggested a predetermined pattern of devaluation to which we should be committed for some years ahead. That seems to me to be unrealistic and too mechanistic.
That alternative seems to be a willingness to accept a wider band rather than the narrower band which the Chancellor is inclined to accept. He was asked about this in the Select Committee by my hon. Friend the Member for Manchester, Withington (Mr. Silvester). The Government are apparently presenting us with a choice between membership on the basis of a narrow band and membership, save in a very remote sense. I find it difficult to understand why there should be such reluctance to contemplate the intermediate course of a wider band, which apparently commends itself to the Italians. There is first-class membership, in the sense of full membership on a narrow band, and there is third-class membership—almost non-membership—in the sense of remaining outside the system altogether. As between those classes, would it not make sense to be


prepared to contemplate the middle class of membership along the same basis as the Italians, provided that it was accompanied by a firm commitment to declining money supply growths in our country, enabling us in the end to narrow the bands as we would all wish?

Mr. Eldon Griffiths: I am sure that the whole House is grateful to my right hon. and learned Friend for having avoided economic models and simulations. In that spirit, will he answer one important question? Does he believe it to be wiser to accept that we should go in in principle while reserving the need to negotiate very hard on the details, or does he agree with what the Chancellor seemed to imply, that we would be better to stay out at the beginning, and hope to arrive at some compromises after the others had gone ahead without us? Which of those policies is my right hon. and learned Friend commending?

Sir G. Howe: I was about to address myself to that question, because I would argue that there is a very strong political case for our participation from the outset in the construction of a system, provided it is properly designed and likely to be durable, to establish in Europe a non-inflationary zone of monetary stability.

Mr. Michael English: What if it is not possible?

Sir G. Howe: The Government have not finished their discussions about it. I hope that they will stop looking at it as though they were dogs in the manger likely to obstruct other countries from achieving it. That is the wrong metaphor, with respect to the Chancellor. Whether he is in the manger or out of it, he will be able to do nothing to prevent the other parties entering it. The danger is that he may turn out to be a drop-out rather than a dog in the manger and be left alone outside it.
If the right hon. Gentleman is unable to achieve entry on the right terms at this stage, there is the real anxiety which would follow from ceding the leadership of the new European monetary system to an axis, which one must describe as the Franco-German axis. The danger of that happening is that it would seriously

reduce our power to achieve the very objectives which the Chancellor has himself said are necessary. Our chances of securing a reduction in the net transfer of resources, which cannot be a condition precedent to these negotiations, and our chances of securing reforms in the common agricultural policy would be impaired substantially if we were unable to join this system from the outset.
In the second place, there is a good economic case for acceding to this system, provided it is founded on a progressively more disciplined management of our domestic money supply and provided that the arrangements for parity changes within the system are worked out along the lines which I have described. If we are unable or unwilling to proceed on those lines from the very outset, we are bound to cast grave doubt on the extent to which this Government genuinely are committed to the conquest of inflation and the pursuit of the necessary monetary policies to achieve it.

Mr. Healey: This is a fascinating exegesis that we are having. The right hon. and learned Gentleman has said that he is in favour of joining on a 6 per cent. band in order to be able to achieve regular depreciation until our inflation rates are level.

Sir G. Howe: No.

Mr. Healey: That is what the right hon. and learned Gentleman implied. If he wants something different, let him make that clear. But I must put to him the central point, which is made in the Green Paper. Every economist knows it to be the case, and it is borne out by British and American experience in the last 12 months. It is that a Government can give overriding priority either to an exchange rate policy or to a money supply policy, but not to both. We cannot join an exchange rate system, accept firm obligations there, and still keep control of our money supply. This is what the Germans have learned in spades in the current year, and it is what is worrying them about the present system, at least on the banking side.

Sir G. Howe: I understand that fully, and it is one of the points which emerged from the overwhelming majority of the evidence given to the Select Committee —the anxiety that, if we were to join


the system now with the present divergence between our inflation rate and those of the best performers, to secure the necessary monetary disciplines at a fast enough pace without any change in relative exchange rates would involve either an unacceptably high monetary contraction in this country or quite impossible alternatives. It is for that reason that we must recognise that we must proceed by recovering control of our monetary policy step by step by being committed firmly to an increasingly restrictive monetary discipline and recognising that there may be an inevitable need for changes in parities within the system while that is taking place. It is for that reason that I have invited the Chancellor of the Exchequer to address himself to the desirability of a wider band.
One is driven to suspect that, although the Chancellor of the Exchequer seeks to present this to the House as though his problems arose from the overweening strength and success of the British economy, the reality is that our failure to be able to take part in the system from the outset will give the lie to the right hon. Gentleman's repeated boasts over the years about the strength of our economy.
The reality is that the position which the Chancellor of the Exchequer so often seeks to present as a triumph is one which many of our European partners would fear as a disaster. Although, in the early 1960s, we were excluded from the European Community, it is said, because some of our European partners were fearful of our strength, the reality is that if the Government are unable to work out a means for acceding to this system at this stage, that will be a crying condemnation of the performance of the Government and their economic policy. If the boasts of the Chancellor about his success were even half true, the Government should be capable of a much more confident approach to this important issue than they have shown so far.

5.26 p.m.

Mr. Douglas Jay: The speech of the right hon. and learned Member for Surrey, East (Sir G. Howe) seems to amount to saying that he is in favour of joining the system, although he does not quite understand what it is. I do not feel that he shed a great deal of light on the subject.
I agree most thankfully with some of the remarks made by my right hon. Friend the Chancellor of the Exchequer, although I am afraid not all of them. As I understood him, he said that, unless certain conditions were satisfied, we could not join this European monetary system. If he would go just a little further and say that, if those conditions are not satisfied, we shall not join, he would relieve a great deal of anxiety among Government supporters.
What worries me is that throughout all these negotiations, instead of putting forward plans ourselves for reform in the Community, again and again we sit back and wait for a French or a German initiative. We then dither and argue about it, and finally we accept a proposition that we do not really like. If French interests are involved, we have a French plan put forward which is precise, for example, for the common fisheries policy or for this EMS, in exact terms and with a date fixed for it. But where British interests are involved—for example, the reform of the common agricultural policy—we have an excellent speech from my right hon. Friend the Prime Minister but we have no plan and no date, and almost nothing happens. Why cannot we have a British plan for reform in all these respects, with a date fixed by which it has to be accepted?
Not having done that in this case, we now find ourselves in the familiar dilemma over the EMS. That being so, let me say straight away that, in my view, we ought not to object to, or to obstruct, other members of the EEC wishing to go forward and create a zone of fixed exchange rates. If they want to limit their own freedom in this way, let them try it once again. As I see it, the major issue in the whole of this controversy is whether the United Kingdom should yet again go back to a regime of fixed exchange rates.
My right hon. Friend the Chancellor of the Exchequer said today—I am glad that he did—that there is no issue of fixed exchange rates here and that, at the worst, all that is proposed is a band of 6 per cent. I agree that 6 per cent. is better than 2 per cent. Nevertheless, after a time, it is an absolute limit on one's freedom of movement. If we are not faced here with a fixed exchange rate regime, let us be told more clearly—I am still not absolutely clear—what it is proposed that


we should join. The Green Paper did not make that clear, nor, wholly, did the Chancellor today.
The nearer that the system approaches to a fixed exchange rate regime, the more I am against it, for reasons which have nothing to do with the controversy over the EEC. It is an issue, to my mind, of economic policy.
My first reason is that fixed exchange rates are not the same thing as monetary stability, which is now the expression in fashion. Indeed, the world had fixed exchange rates between 1929 and 1932, which was possibly the greatest period of monetary instability in the present century. Secondly, it has been proved time and again, not by theory or models or"simulation "—that is the word now —but by bitter experience, that fixed exchange rates for the United Kingdom mean trade deficits, deflation, unemployment and low growth in real terms.
We went through this agonising struggle for six years before 1931, for three years before 1949 and 1967, and yet again in 1972. Although it may not be much comfort to be wise after the event, surely we should not be unwise after three or four events.
I do not know whether the Government, on this issue, remember their own words in the referendum pamphlet distributed to every household at the time of the referendum. The pamphlet read:
 There was a threat to employment in Britain from the movement in the Common Market towards economic and monetary union. This could have forced us to accept fixed exchange rates for the pound, restricting industrial growth and so putting jobs at risk. This threat has been removed.
Those were the words—it is not entirely a fact to be neglected—on which the country voted at the time of the referendum.
The reason why fixed, or nearly fixed, exchange rates are so damaging is that they are as much a defiance of economic realities as would be an eternally fixed price of petrol or rate of income tax or minimum bus fare on London Transport. Economic forces are always changing. An attempt to stop them doing so by fixing the exchange rate of one's currency is a classic example of attacking the symptoms and not the cause of the disease.
A new delusion seems to be springing up and even shows its head in the Green Paper. It is the idea that different economies can somehow"converge "—the new blessed word on this issue. Of course they will not, except perhaps temporarily and by chance. The myth seems to be that one happy day the lamb is going to lie down with the lion, the yen with the lira, the pound with the dollar and the mark, and so on. That is the vision implied. Of course, this will never happen. But that myth is supported by yet another—the idea that only different rates of what is miscalled inflation or productivity require movements in exchange rates. It is not so. The discovery of oil in the North Sea or bauxite in Australia, or the failure of the North American grain harvest, can all affect the economic rate of exchange.
We cannot argue these issues at length in the House nowadays, but I believe that the true moral is that a lasting and sensible exchange rate regime would be one that combined short-term stability with long-term flexibility. That is what we should aim at. Both short-term instability and long-run rigidity are equally undesirable. One thing on which I agree with the right hon. and learned Member for Surrey, East is that there are fashions in these things.
I have watched the intellectual circle rotate about six times since 1925. When we have short-term stability, people demand long-term flexibility. When we have short-term instability, they swing back again to demand long-term rigidity. We are now in the latter phase for about the sixth time in the last 30 years. Looked at in the long term, the whole story proves that a gradual movement of exchange rates is the best means of achieving the economic adjustments between different countries, which will always have to be done somehow.
The right technical answer would, I believe, be something on the lines of the so-called crawling peg which, for lack of time, I shall not describe but which attempts to combine short-term stability of exchange rates with the possibility of long-term movement. That is a perfectly practical technical arrangement, but I agree that it is probably not politically possible, largely because most people do not understand what the problem is and


how this solution would work. On that assumption, the wisest course, I believe, for the United Kingdom, at this stage, is to retain its exchange freedom.

Dr. Bray: My right hon. Friend will have heard, as I did yesterday, the Chancellor say elsewhere that at least one other country was entering the EMS deliberately regarding it as a crawling peg system.

Mr. Jay: I heard that, but unfortunately it can only crawl down to a certain point because of the 6 per cent. margin.

Mr. Healey: Let me make it clear to my right hon. Friend. There are two elements in the system. First, there is the marginal element which people are expected to keep within by appropriate action, whether by intervention, movement of interest rates, fiscal policy or whatever, but there is also the possibility of regular realignment of parities. There have been 19 in five years in the snake. In other words, it does operate as a crawling peg. The theory is precisely the one which my right hon. Friend was recommending, namely, short-term stability with long-term flexibility.

Mr. Jay: If we enter something that is truly on the lines of the crawling peg, I shall welcome it. All experience, however, when we have had fixed limits, is that we indulge in a long, agonised economic struggle to stick to them and finally give way in an atmosphere of disaster. Although I am sure that my right hon. Friend the Chancellor means extremely well, I would want a lot of convincing that that would not happen again if we accepted any of these sorts of obligation.
One of the remarkable facts about this controversy is that, in fact, nothing is lost by staying out of this system. If, at some later period, we decide that the economic world has changed and fixed exchange rates are desirable, it is open to us to join. I am not one of those, like my hon. Friend the Member for Southampton, Test (Mr. Gould), who believe that we should now deliberately depreciate the present sterling rate. It is always arguable, but I am not wholly convinced that this is the time. Nor do I believe that one can simply let the rate run free according to market forces. In practice, it is speculation and not trade which determines the short-term movements and produces wild and unnecessary fluctuations. Therefore, it

seems clear that some short-term management of the rates is necessary. But, in spite of that, we should retain what freedom we can.
These are all general arguments. But, in the case of the United Kingdom at this moment, the closer the approach to fixed rates, particularly against the German mark, the greater the damage would be. By removing all possibility of imposing tariffs or quotas on manufactured imports from the Continent, we have now incurred a trade deficit with the old Six alone in manufactured goods which is still running at about £2,000 million a year—an enormous figure, which is Batting a great deal of our oil revenues. If we not merely cannot correct that by tariffs or quotas but cannot correct it ever by lowering the exchange rate, the threat of unemployment and of real industrial decline in this country will be extremely serious.
As I understood the Chancellor today, we are now told that, immediately, there is to be some sort of compromise if all these conditions are not accepted, which apparently—he has confirmed this—does not involve a fixed rate for the pound. If that simply means continuing the argument, I see no major objection to that. But if it involves handing over some of our currency reserves—this was obviously involved in the full scheme—to some new authority, we are bound to ask, is there to be legislation before that is done? My right hon. Friend did not fully answer that question earlier today.

Mr. Healey: I think I did.

Mr. Jay: I do not believe that the Government have the right, without legislative authority from this Parliament, to hand over our currency reserves, which are in fact the property of the nation—formally the exchange equalisation account—and not only of the Bank of England.
As I said in an intervention, when this country joined the International Monetary Fund a Bill was passed through this House to authorise the Government to make such payments. That Bill came before the House in December 1945 and was described as authorising the Government to pay this country's subscription to the IMF and the World Bank. If it had not been necessary to get the authority of this House to do so, obviously


the Government would not have presented such a Bill. But they did, and the House passed it.
We want to know clearly, I hope tonight: are we to have a similar Bill now in this case? I do not believe, on such information and advice as I have had, that the Government have the legal authority to make similar payments to some new international fund without that authority.

Mr. Healey: There is no question in any case of that type of handing-over of reserves to an international fund at this stage. All that has been agreed in principle is that negotiations would take place with a view to setting up a fund two years after the exchange rate regime comes into effect. If these negotiations were ever concluded and we were part, we should certainly need legislation in order to participate.

Mr. Jay: The principle that I want to establish is not whether it is proposed to set up this fund immediately—I am not greatly disappointed to hear that it is not—but that if it were there would be full legislation in this House beforehand.

Mr. Healey: indicated assent.

Mr. Jay: I gather that we have the assent of the Chancellor at least to that question today.
Therefore, having established that, I have only two futher questions to be answered before the debate ends. May we know in rather more detail what are the concessions on the agricultural policy and the EEC budget which I gather we are putting forward as necessary conditions for entering this scheme? And may we, finally, be assured that, even in respect of what is agreed at the meeting of the Council in a week. no final commitments will be accepted without the proper authority of this House being obtained?

5.45 p.m.

Mr. Reginald Maudling: This is a formidable debate for any Back Bencher to enter without the technical advice available to the Government and to the Front Bench spokesmen for the Opposition. I hope that the House will allow me to partici-

pate in the debate in a spirit of nostalgia. I have just worked out that the first time that I led a British delegation to the International Monetary Fund was almost exactly a quarter of a century ago. It was a rather formidable task. Lord Butler was Chancellor of the Exchequer and I was his young deputy.

Mr. Dennis Skinner (Bolsover): I wondered who was to blame.

Mr. Maudling: The problems and the circumstances have certainly changed enormously over those years, but the argument, when considered closely, remains very much as it was in the day of Bretton Woods. What is so interesting to me about the EMS is the similarity between this new system and the Bretton Woods system.
As I understand it, both are based, first—one on a world scale, the other on a European scale on the principle of the maximum freedom of trade and payments. Both are based, secondly, on the principle of the maximum possible stability of exchange rates; not fixed exchange rates—they do not exist in this world and it is not possible to have them —but maximum stability of exchange rates.
The third purpose was to make funds available to deal with short-term fluctuations which Governments had to face, naturally, in the market for their currencies. Fourthly, obligations were supposed to be laid on the strong countries as well as the weak to play their part in ensuring that stability was achievable. Those, as I understand it, were the four basic principles of Bretton Woods and they appear to me to be the four basic principles of the present system.
This is, in a sense, a recommendation for the present system, but in another sense we must consider it in the light of experience. My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) referred, I think, to the collapse of the Bretton Woods system. I do not think that it has collapsed, but it has certainly run, over the years, into formidible difficulties. Should we not possibly suppose that the difficulties faced by Bretton Woods on the world scale could also be faced very simply on the same lines on the European scale by the EMS?

Mr. Frank Hooley: Surely there is a basic difference between a scheme, the Bretton Woods scheme, which included all the world's major currencies—the dollar, sterling, the mark and so forth—and a scheme such as the EMS, which excludes the most important international currency in the world. the dollar, and one of the most powerful currencies, the yen. I do not see how the right hon. Gentleman can say that the two are alike if two important components are outside the EMS scheme.

Mr. Maudling: The principles and the mechanisms are exactly the same. The point is that the dominance of the dollar which existed at the time of Bretton Woods has now disappeared. That is one of the reasons for the fluctuations and turbulence in the currency markets at the moment.
Thus, the argument over these years—to over-simplify, as one must in a brief speech—has been between the hard money men and the soft money men. The first accord priority to international exchange stability. They refer to the danger of competitive devaluations and they attach great importance to a rigid international monetary regime as a discipline for national economies.
On the other hand, it is argued that the need exists to use money as a means of creating real prosperity, that the only purpose of money and the whole mechanism of money is to create real prosperity, that there is a danger in excessive rigidity, and that it is, as experience has now shown, impossible to use international monetary disciplines to correct basic economic faults in any national economy which arise from social and political factors in that economy.
There are a number of examples of the argument between the soft money men and the hard money men. In the 1950s there was a scheme called the collective approach to sterling convertibility. It was a Commonwealth policy which involved working on a flexible floating rate for sterling. That was our policy for a couple of years until Lord Butler was knocked off it in 1955 by the hard money men.
There was a plan in 1962 to increase international reserves which eventually led to the SDRs. The opposition of the hard money men to the expansion of the

international reserve facilities was considerable. This battle continues all the time.
I must not dwell too much on the past. Much has changed. In particular, two things have changed. First, there has been a vast increase in the volume of foot loose money in the world. Sometimes it is impossible to comprehend the scale of the foot loose money which is moving around the world easily and which has grown in the past 10 or 15 years.
Secondly, there has been a decline in the position of the reserve currencies which in the 1950s totally dominated the currency situation. There is no joy in having a reserve currency. Some people used to think that there was. The French used to claim that the British were lucky to have a reserve currency. We used to say to them"Good luck to you. Become a country with a reserve currency." But in order to have a reserve currency one must have some indebtedness. If a country does not have indebtedness, no one can hold its currency.
For years the economic growth of the United Kingdom was bedevilled by the legacy of the war, the overhang of sterling balances and the too vigorous defence of a fixed parity over too long a period.
The fact that some currencies are reserve currencies means that they cannot all be treated alike. Sterling is still a reserve currency to a considerable extent. It is a trading currency and it is different from other European currencies. We must remember that currencies have two values—a current value and a capital value. The value of a currency for current transactions in trade is different from the value which is related to movements of capital across the markets of the world. The distortions and divergences between current values and the capital values are far greater for reserve currencies than for any basically domestic currencies, however important those currencies might be.
Against that background, I look at the EMS. The case for our joining and participating is now not only economic; it has also acquired a major political dimension. I understand that the case for joining involves the stability that the system will give to international trading transactions, particularly within Europe, and,


secondly, the external monetary discipline involved is desirable for the health of our domestic economies. The third reason is that it is politically essential to the progress of the EEC that we should join.
I do not find those arguments convincing as regards any current membership by the United Kingdom. I agree that stability of exchange rates is good for trade. But there is no such thing as complete stability of exchange rates. It is a question of degree. There are sharp changes at intervals, usually preceded by either a flood of one-way speculation or frequent adjustments. There is no such thing as a permanently fixed exchange rate. In practice, there is no such thing as a freely floating exchange rate. Somewhere between the two one must find a solution.
No one has found the solution yet, even with the creeping and crawling pegs. The only guarantee of stability is through a greater convergence of the economic performance of the countries involved in the monetary system.
Will a monetary discipline of the kind envisaged by the supporters of the EMS enforce this economic convergence? I do not believe that it will. I think that it will have a marginal and short-term effect. It could correct Government faults from time to time or push people in the same direction. However, the fundamental reasons for economically divergent performances lie, not with the monetary system, but in the hearts and the minds of the people.
I agree that there is a great need for European unity. But no joy will come to Europe from a scheme which fails. I read about missed trains and missed buses —a horrible analogy first used by Neville Chamberlain. If the bus is doomed to run into a lamp-post, I would rather miss it.
What are the political ends of the strongest proponents of the EMS in its present form? They are hankering after a common currency. That worries me. I have always believed that a common currency must be the last stage of the development of economic unity and not imposed as a part of the process towards that unity. A common currency requires a common central bank to manage it. A

common central bank requires a common central political system. I do not see how one can support the idea of a common currency without supporting the idea of a common Government.

Mr. Nicholas Ridley: Is my right hon. Friend in favour of setting up a central bank and a central economic policy for the nine countries, or is he saying that he does not want to go down that road at all? He appears to be blocking the road to EMS and, so far as I can understand. he is not in favour of the other road. Presumably, for him the missed bus is going in the wrong direction.

Mr. Maudling: Perhaps I have failed to express myself clearly. I am saying that the establishment of a common currency and a common central bank is the ultimate objective and the crowning achievement of economic unity. It is wrong to try to impose it at this time. I accept it as a final achievement of economic unity. However, we must have a high degree of political unity in Europe before we can achieve that objective.

Mr. Powell: Does the right hon. Gentleman want it?

Mr. Maudling: Yes, of course. I want to see European unity, but I want it to grow organically out of the reality of the economy rather than have it imposed by some system which will break down in the process.
Mr. Gaston Thorn, the Luxembourg Prime Minister, was reported in The Times this morning as saying
 There is no doubt in anyone's mind that such a monetary system cannot function on the basis of simple inter-governmental cooperation. That would indeed be the best recipe for failure. What we need is, very soon, in some form or another, an efficient common decision-making body.

Mr. English: Equal to that run by the leader of the Nottingham city council?

Mr. Maudling: I do not know the leader of Nottingham city council, but Mr. Thorn is a man of great experience and intelligence and should not be insulted.
It would not be right for us, or for Europe, if the United Kingdom joined the EMS now and on this basis. There is no


reason why the other countries should not go ahead. There is no reason why we should not go in at the right time. But at present our entry is more likely to cause trouble and setbacks and is unlikely to further the cause of British prosperity or of European unity.
We are always hearing about the strong and weak countries in Europe. I am sick and tired to death of hearing Britain described as a weak country. If it is a weak country, it is our fault and nobody else's. We have great industry, great skills, great commerce and the best agriculture in the world. We also have North Sea oil. If we are weak, it is our own fault. We should not ask for sympathy. We should accept the shame of it and set our own house in order.

6.0 p.m.

Mr. John Prescott: Most hon. Members, like myself, will experience great difficulty in following some aspects of the debate. The right hon. and learned Member for Surrey, East (Sir G. Howe) demonstrated that, no matter how much attention one devotes to this complex subject, one cannot confidently approach it in the belief that one has reached all the correct conclusions. For that reason, I intend not to deal with the technical implications of the proposals, but to take the much more simple path of considering the contribution they might or might not make to our major problem of unemployment, and a claim has been made in that respect. The various Heads of State who have advocated the EMS, particularly Chancellor Schmidt, have said that it will specifically help to reduce the high levels of unemployment in the Community.
There are, I believe, two grounds for rejecting the EMS. The first is economic. It is based, I believe, upon a false analysis of the cause of inflation and the lack of growth, which are essential components in the creation of unemployment.
The second ground is political. It is equally as important as the first, and is not simply a political aspect. Acceptance of the EMS is a first essential step towards economic and monetary union, which is at the heart of a federal Europe.
We all have differing views about the role of the Common Market. Even those who support Britain's membership include those who oppose the development of a

federal Europe. It is important to consider whether EMS would lock us into a system from which we could not escape and the ultimate conclusion of which would be economic and monetary union. It is important to make that point because we have been told by our own Front Benches that EMS is not a step towards economic and monetary union. I reject that claim.
Other hon. Members than myself, including certain of my right hon. and hon. Friends, can make much more substantial arguments about the economic aspect of these proposals. The right hon. Member for Chipping Barnet (Mr. Maudling) launched a powerful attack on the suggestion that stability of currencies alone will solve our economic problems. As he said, the cause of currency instability is related closely to the $600,000 million of loose money. That aspect will not be met by these proposals.
The reserves which are available to deal with fluctuations of currencies pale into significance compared with the Eurodollars and hot money which are flooding into our system. Those reserves provide no effective insurance against trouble in that direction. That problem can be settled only on a world level. I welcome the moves by my right hon. Friend the Prime Minister to achieve greater stability in dealing with international financial problems, which certainly create major difficulties for us.
The main point is that any scheme that fails to take account of its effect on the dollar and the yen cannot contribute to easing the international financial situation. It may be argued that EMS is a step towards that, that if we were able to secure some form of stability in the Community, based on a number of reserve currencies, that would be a major contribution towards world economic stability.
If that is the purpose of the proposals, there may be a case for them. But we must be clear that EMS will not be a European version of the IMF. The two would be substantially different. My right hon. Friend the Chancellor of the Exchequer has occasionally argued that there are similarities between the two, that the ECU can somehow be equated to special drawing rights, that under EMS reserve funds would be available, as they are with the IMF, and that EMS


like the IMF, would impose conditions on the making of loans.
Our experience of the IMF enables us to say that the conditions imposed upon loans by the IMF—no matter how much we may complain about them—offer much greater flexibility than we would derive from being locked into a European system. That is largely because of two important factors. First, Community policies lock in a number of industrial options and policies. Second, there are legal and administrative institutions in the Community which would enforce any proposals necessary to secure a convergence of member State economies, which is considered to be an essential factor.
It is argued with some justification that any differences between the inflation rates obtaining in the various member States affect the stability of the respective currencies. That is why countries, from time to time, devalue or revalue their currencies.
I do not accept that exchange rates are the sole contributory factor to inflation. The complete answer to our troubles does not lie in that direction. Floating and fixed exchange rates have been put up as the answer, but they have failed, and they certainly do not provide a way out of our immediate difficulties. I agree, however, with my hon. Friend the Member for Southampton, Test (Mr. Gould) that, to be fair, that method and effects should be tested over a longer period, a point that was made in evidence to the Select Committee.
An important consideration for Europe is whether it is possible for the various economies to converge and produce the optimum European economy, assuming that there is such a thing. If there is such an economy, there must also be an optimum inflation rate. Varying rates of inflation would serve only to give a competitive advantage to one or more of the countries involved. That consideration applies already to international trade and intra-Community trade.
This consideration explains why Germany strongly supports this policy. We see there a classic example of how one member State can advance its own national interest, wrapping it up in Eurojargon and throwing us onto the defensive.
The criticism of this Government by the Opposition—I concede this point—is that we have not learned that lesson for ourselves. However, even that would not get us over the problem of differing exchange rates in the event of divergence in our economies. I can remember Anthony Crosland, the former Foreign Secretary, telling the European Parliament that all the evidence pointed towards a divergence of the EEC economies. I believe that EMS would only aggravate the problems of the differing inflation rates which are themselves a reflection of the divergence of the economies.
If that happens it is due not so much to the instability of currencies as to the nature of the respective economies and societies. For example, a few years ago OECD produced a report on the economies of 20 developed countries. It said that there was a crisis of stagflation—simultaneous stagnation and inflation—and it asked how that could happen in spite of all the attention that had been devoted to the problem. OECD appointed the three wise men—the McCracken Commission—who discovered that after each period of development in our economy we returned to a higher level of inflation and unemployment, and to lower growth and a lower rate of investment.
I cannot now go into the reasons given for that, but clearly our inflationary problems are more closely related to the world's developed economies than they would be to an optimum European economy aimed at securing low inflation.
I do not accept the apparently common belief that we can have growth without inflation. I believe that high levels of inflation are endemic in our system for a number of reasons, which I do not have the time to deal with now, which means that we shall have to live with diverging rates of inflation. If that is the case, we would be faced with still greater problems if we sought to use currency exchange rates to get around that difficulty.

Mr. Dykes: I hope that the hon. Member will not mind my saying that the arguments are somewhat muddled at this stage and that the House is not clear about what he is driving at. Why does he think that France, which has higher inflation than we do, is happy to join the system?

Mr. Prescott: That is a good question. France was happy to join the snake. It


was happy to join it for a second time, and it was happy to leave it when it felt that it could not stay with it. There are a number of reasons and a number of arguments, and I do not have time to develop them.
If we consider the snake as an example of how there can be stability between currencies, what are the inflation rates of the snake countries? The ratio between Denmark and Germany is five to one—that is, Denmark has an inflation of 10 per cent. Both countries have been members of the snake for some years. To tie a currency to a rate and to operate in the snake fashion is no guarantee that there will be a convergence of economies and a reduction of the inflation rate. It has taken the United Kingdom about four years to reduce its inflation rate from 20 per cent. to 8 per cent. Is it to be believed that, in the next year or two, we shall reduce the rate to 2 per cent? I do not believe that to be possible.

Mrs. Kellett-Bowman: Even accepting the hon. Gentleman's hypothesis, how does he explain the fact that Germany has had an extremely good growth rate and that its current rate of inflation is only 2·7 per cent? Surely that is a phenomenon that blows sky high his argument.

Mr. Prescott: Germany has a lower growth rate than previously. If we average out the German rate of inflation, we find that it is now higher than previously. The level of unemployment in Germany is almost as great as in Britain. If one wants to use the rate of inflation as a sole measure, then of course there is success. However, my criterion is the level of unemployment. That is a measure of greater importance.
When Commissioner Ortoli appeared before the Economic Committee I asked him"What is the optimum rate of inflation if we can converge our economies?"He replied that it would be between 0 per cent. and"Y"per cent. Clearly, the commissioner does not know what will happen.
Let us assume that the convergence and the balancing of inflation rates mean that inflation in Germany will move from 2 per cent. to 4 per cent. and will expand its economy to achieve that sort of

balance. I do not believe that it is politically possible for the German Government to allow inflation to increase from 2 per cent. to 4 per cent., especially in the two years running up to the German election. That would be one of the consequences of achieving a quid pro quo, a transfer mechanism of resources. There is a considerable argument to be made on the analysis of inflation. The concept in this EMS proposal needs to be questioned. The arguments lead me to reject the concept that we can rely solely on the currency exchange proposals.
Let us assume that, by some miracle, we are able to produce a European economy and a European inflation rate that is generally within balance among the various countries—for example, a rate of 2 per cent. or 3 per cent. If that were achieved, does anyone believe that our trading relationships with the outside world would improve as against those of our competitors in certain major industries—for example, shipbuilding, steel, textiles, cars and electronics? All those industries are being heavily undermined by developing countries such as Japan, Korea and Brazil. If we take into account total wage costs and labour social costs in shipbuilding, the costs are twice as much in Germany as in Japan. I have selected Germany as an example of efficiency. Even with the same level of technology in some industrial areas, we shall not be able to compete on the price factor alone. That is why the Community is moving more and more to import controls, increased steel import prices and similar actions.
If we were to solve the currency problem and arrive at some competition within the European arena, we would have to use other mechanisms to deal with the industrial problems and unemployment levels. Life would be made more difficult by EMS. That is because the system is wedded to the concept of a type of international free trade, which I think is finished. We shall have to carve up the market more effectively than the present world price mechanism has achieved.
The acceptance of EMS is the first stage towards economic and monetary union. Those who say it is not should ask themselves"What are the essential component parts of economic and monetary union?" The first component part is the existence of central decision-making bodies such as


a central executive. That is already developing with the Council of Ministers and the Commission. The second component part is a judiciary whose central decisions affect the Community, and that is well in evidence. The third component part is a legislative centre the effect of which will be strongly increased if direct elections take place.
The vital missing component to bring about economic and monetary union is some dramatic means of transferring imbalances within the Community. EMS is the first step in developing that transfer mechanism. The Government argue that they will accept the system if they can be satisfied that there will be a powerful transfer mechanism to help protect the weak from the strong. If that argument is accepted, it seems that we shall be strengthening the case for the development of economic and monetary union. It will also mean an increased budget. Presumably that will move towards the 5 per cent. of the Communities GNP as a minimum qualification for economic and monetary union.
The House should be aware that when the European Parliament increased its share from 600 million to 1,000 million units of account it demanded that share for regional policy. The Council of Ministers did not reject that demand. Yesterday the increase took effect. That is one of the results of recent changes to the treaty. That is an example of an institution changing its status from an Assembly to an effective Parliament. It forced that change against the wishes of the executive and increased the Budget totals and budgetary control. That was a major step towards the new powers that the European Assembly possesses. The House helped it to gain its powers in 1975. There was discussion, but no vote. It was given new powers for non-obligatory expenditure. By strengthening that mechanism we see the first stage towards the necessary institutions for economic and monetary union and a federal Europe.
I do not believe that EMS will solve the problem of unemployment or of low growth rates. It will lock us into using a system in which we shall not have the same flexibility to act independently on our exchange rate and deny us the essential tools of control necessary to achieve

economic and political stability with rising unemployment. On political grounds I object to the movement towards a federal Europe with economic and monetary union, of which EMS is an essential and fundamental first step.

6.18 p.m.

Mr. J. Enoch Powell: One contribution that the hon. Member for Kingston upon Hull, East (Mr. Prescott) has made to the debate is to subject to examination the concept of economic convergence, which is too much talked about and too little examined. In the course of my remarks I shall take up the examination from where the hon. Gentleman left it and follow it a little further.
The debate has demonstrated what used to be called in the nineteenth century the phenomenon of a dissolving view, whereby the subject that was thought to be under discussion seemed to disappear before one's very eyes. The Chancellor of the Exchequer said that the matter at issue next week in Brussels will be essentially limited to the currency exchange system. The right hon. Gentleman denied that a system of fixed parities was involved. It was not a system of fixed parities, he said, because there was to be a snake. We were told that the bore of the snake would be larger than that of the old snake—it would be quite a boa constrictor of a snake. Besides that, there would from time to time be adjustments of parities. So we were not talking, apparently, about fixed parities.
But what the Chancellor did to the subject was nothing to the magic act of the right hon. and learned Member for Surrey, East (Sir G. Howe). Under the right hon. and learned Gentleman's wand, it disappeared altogether. In his enthusiasm for what he thought was the system being mooted, he said that he would like to see an arrangement whereby adjustments took place before and not after intervention was necessary. One would have thought that a system of exchange rates that are free to alter whenever necessary without any intervention is remarkably difficult to distinguish from a system of freely floating exchange rates.
However, in the end there is a subject, and we know what it is; it is a system of controlled exchange rates whereby the


exchange rates are to be laid down by a common authority for the whole of the European Economic Community, and if they are to alter from time to time it will be the authority which lays them down that will decide whether, when, and how they are going to be altered.
Now, a system of controlled exchange rates, in that sense of the term, is unworkable and always will be unworkable, both inside and outside the European Economic Community. The attempt to construct and work such a system has already had a devastating effect upon the life of this country and upon its morale in the past 30 years; and there will be no difference with any such system as may be promulgated by the EEC.
Exchange rates are bound, all the time, to be in a state of variation in relation to one another. The most obvious cause, though not necessarily the most important, is the differential rate of inflation, or to put it more accurately, the differential rate of expected future inflation. The idea that the expected rates of inflation in nine or 12 countries will move together, that there can be some contrivance whereby nine or 12 independent Governments will so manage their budgetary arrangements and their other governmental activities—in so far as those are the exclusive causes of inflation, which is a big assumption—that they all inflate at exactly the same rate per annum and are expected to go on inflating at the same rate per annum, is beyond all credence or possibility.
But the divergence of prospective exchange rates is only one of the reasons why exchange rates vary all the time. Everything which happens in the real world, every alteration in the terms of production, fashion, supply, everything economic in any corner of the world, is reflected in a variation—we cannot predict what it will be or precisely where it will be—in the exchange rates of the different currencies, because it alters the supply and demand for the respective currencies throughout the world.
If a country could contrive to manage its money supply and all the rest in such a way that the internal purchasing power of a unit of its currency remained absolutely steady—I do not know how we would measure it, whether in terms of

wheat or as the consumption of an average working man, but let us assume that it could be measured and that it was absolutely steady—not just from month to month but from year to year, that country's currency would still not have a stable exchange rate against the rest of the world.

Mr. English: It would go up.

Mr. Powell: The exchange rate would not even necessarily go up, as the hon. Member for Nottingham, West (Mr. English) interjects. It could go down. It would do one thing or the other according to that country's economic experience and according to what was happening in the rest of the world. For example, the fact that we discover an indigenous source for something which we were previously importing from the outside world is bound to affect our exchange rate and the exchange rates of all the other currencies.
So the attempt to control—and I hope I will be pardoned if I sometimes slip into saying"to fix "—exchange rates is foredoomed immediately to come into conflict with economic reality as expressed by the crucial price which we know as an exchange rate. That has been the history; but there have been various methods of overcoming that conflict. In the time of the gold standard it was done by an automatic process, whereby the movement of gold from one country to another either inflated or deflated the currency in the respective countries.
Inflation or deflation, necessitated by the attempt to maintain fixed parities of exchange rate, runs right the way through the story, however, complicated or simple the mechanisms have been. When we had a fixed exchange rate on a gold exchange standard from 1925—I do not need to remind the House and certainly not the Labour Party—this meant that grinding deflation had to be imposed upon this economy. There was no alternative. Under the perhaps more enlightened arrangement which has prevailed in the past 30 years, which is not even a gold exchange standard, gold having ceased to play a part in the system, what has still been happening, is that there has been enforced, by however complicated a process, inflation or deflation in order to attempt to maintain controlled or fixed parities.
So if we enter into such a system as proposed, we shall know in advance that we are committing ourselves to our economy being manipulated by an outside force either deflationary or inflationary.

Mr. Anthony Nelson: As it is now.

Mr. Powell: I will come presently to the interjection"as it is now ", because the Chancellor of the Exchequer said something to that effect, which I want to take up. Meanwhile, the next stage in the search for some degree of"fixity ", or stability, is to say—this is the reasoning which lies behind the proposition of a European currency—" Very well then, since there is this difficulty in reconciling the relative movement of nine currencies with all these changes in the real and monetary world, let us have one currency ".
One can do that in two ways. One either imposes a single currency, as if we had been conquered by a European emperor, or else one rules that all the currencies shall be freely and automatically exchangeable with one another at pre-determined parities, which, of course, is workable only provided there is only one monetary authority. But whether we make the national currencies interchangeable or have a single European currency, what we must have is a single European monetary authority—one such source with the right to emit currency. That means control over the monetary factor in the economy by one authority for the whole of the European Economic Community.

Mr. Nelson: Will the right hon. Gentleman give way?

Mr. Powell: Yes, I shall, but if the hon. Member wants to follow the point of the interjection that he made I promise him that it lies in my path. I can already see it coming up, not just over the horizon but rushing towards me. However, if I should disappoint him, I promise to give way to him before I finally resume my seat.
Now, whatever the objections—and I share the objections of the hon. Member for Kingston upon Hull, East—to a European currency, implying as it does a single monetary authority for the Com-

munity, it might seem that it would at least solve the problem. It would not. It would have masked it. The economic differences, the differences of economic experience, which exchange rates previously expressed, would still be there. They would still go on. Why, these economic divergencies exist inside a single country. If we had separate currencies for the different counties or regions of the United Kingdom, the exchange rates between those currencies would soon show us the divergencies of economic experience, opportunity and exploitation, in the different parts of even so compact an economy as that of the United Kingdom.
Because we are a nation, we accept, though reluctantly, and perhaps with increasing reluctance, the consequences of what it means to have one common currency, even for an economy with the homogeneity of the United Kingdom's. It is what is known as the regional problem. We accept, because we still feel ourselves to be one nation, the fact that it will impose great movements of population. We accept that it will impose great changes in economic and in social life, which with some difficulty, even as a single nation, we attempt to meet by lessening their impact upon the individual.
Now, the effect of a European monetary system is to expand, to magnify, that same phenomenon which, with difficulty, we digest within the confines of a single nation. The hon. Member for Moray and Nairn (Mrs. Ewing) does not believe that it is digestible even within the confines of the United Kingdom.

Mrs. Winifred Ewing: rose—

Mr. Powell: The hon. Lady need not add an a fortiori to my argument; she is my living a fortiori.

Mrs. Winifred Ewing: Does the right hon. Member recall his own remarks to this House—when we were talking on another subject—when he said"England, beware of the case of Scotland."? He was then referring to the economic and monetary union of two nations and dealing with the awful consequences of that situation.

Mr. Powell: Yes, and I do not need the hon. Lady to remind me that there is a price to be paid for being a nation. There is a price to pay for being a United


Kingdom. There can come the time when some of the elements of that nation would believe that the price was too high to pay. Some believe that time has come for Scotland. We from Ulster say that for Ulster it has not come and we never see the time when it will come.
However, the hon. Lady has diverted me. I am coming now to convergence. and to the attack made by the hon. Member for Kingston upon Hull, East upon the concept of convergence. When the advocates of EMS are confronted with the implications of a common monetary system, they say that it will be all right if we do not do it until the respective economies have converged. Is it really credible, does anyone seriously suppose, when the reality is envisaged, that the result of creating a common market of nine or 12 nations is to increase the uniformity of economic activity from one corner of that vast area to another? Of course it is not. The result of a common market and a common monetary system is to intensify and throw into relief all those economic trends which the component nations would endeavour to digest separately in accordance with their own judgments and their own national characters and intentions. This notion of convergence—either convergence of rates of inflation or economic convergence—is a will o' the wisp, something dreamed up at the end of a dead-end argument into which the proponents of EMS have talked themselves.
The Chancellor of the Exchequer said that there was no question in all of this of a surrender of independence because, he said—and I took the words down" there is no independence to surrender ". The reason which he gave for that statement was that no country determines the exchange rate of its own currency. Of course it does not, because the exchange rate is the exchange rate between our currency and the other country's currency. If we control only one of the elements in an exchange, we clearly cannot control the break-even point at which the exchange will take place. This is an old story. I used to astonish audiences—

Mr. Tim Renton: You still do.

Mr. Powell: At least I no longer astonish them with this statement, with

this explanation, because they have all learned it by now. I used to explain"If we float, the rest of the world floats too; for if you float your own currency, all the other currencies float against yours ". In fact whatever you do to your currency, the exchange rate is not determined by what you alone do; it is determined by the unforeseeable combination of what is happening to you and what is happening to the rest of the world. In that sense the Chancellor of the Exchequer was right to say that we do not determine the exchange rate of our currency.
But it is an absurd, illogical, leap from there to say that we have no independence, that we do not have the right either to combat or not combat inflation and so, to that extent, influence—among other things—the exchange rate of the £ sterling just because we cannot determine what that exchange rate will be. If our exchange rate is not governed—if we have not undertaken that it shall be governed—by an external authority, we do enjoy an independence in the management of our economy—so far as it lies in the hands of government to do so—and an independence in influencing the behaviour of the money supply in our economy.
So far from there being no loss of independence by accepting a system of control over our exchange rate, it is the largest loss of independence yet which we could contrive to make; for all economic decisions lead back, feed back, into the exchange rate. Surrender the right to control the exchange rate—surrender control over it to another body—and one has, directly or indirectly, surrendered the control of all the economic levers of government.

Mr. Tim Renton: Surely the point made by the Chancellor of the Exchequer was quite different from that which the right hon. Gentleman has been making. What the Chancellor was saying was that recently all of our currencies have been tossed around by the vagaries of the dollar. The fact that sterling went up to $2·10 the other day was nothing to do with the economic policies of this Government, who are still running an excessive PSBR. It was entirely due to the weakness of the dollar. If we can organise a European monetary system and if, in that, we can create some zone of monetary stability, we have the possibility in the process of regaining some of the


monetary sovereignty and independence that we have at the moment lost.

Mr. Powell: So far from my having mistaken the point which the Chancellor made, the hon. Member for Mid-Sussex (Mr. Renton) has confirmed that I got it right. He has cited another example. He pointed out that if the dollar goes to pot, if the value which the world places on the dollar is halved, the exchange rate of the £ against the dollar will bounce up. That is exactly what I said: we do not control our exchange rate, because that rate is the rate between our currency and other currencies, and we can control or observe only one half of the duality. That is the point that the Chancellor was making and the point which I took. It has nothing to do with possession of the independent right to take economic measures, financial and monetary decisions, which we would otherwise have to relinquish to conform with the system of controlled exchange rates.
The House and the Government are confronting not merely a real question but one of the most fundamental of questions, that of national economic independence of decision. From what the Chancellor said, I gather that the Government are not proposing to surrender that independence, at any rate not just yet. I would not particularly criticise the methods which the right hon. Gentleman and the Prime Minister adopt to ensure that we do not surrender this economic independence in the context of the negotiations over an EMS. I do not particularly mind if they do it by saying"The EMS is a splendid thing so long as we are not in it ", or"We shall, of course, join the arrangements, provided that we do not have to conform with them."
I believe that this approach would be congenial to the Prime Minister: he does it very well indeed. The Prime Minister has sometimes been referred to under the analogy of Moses. In fact, he appeared to be rather pleased with it. Moses led his people out of bondage and to at any rate the confines of the Promised Land, but he did not do it by direct route. The route he took was not the shortest route between the two points. It can often happen that, in order to maintain our political and economic independence, we need to pursue a somewhat more circuitous route than would appeal, I think,

to the hon. Member for Kingston-upon-Hull, East who preceded me, or to myself. But it is the substance that matters. If the Government will retain for this country the substance of political independence, we shall not bother too much about the fluff and the smoke which have to be produced in order to achieve the operation.

6.41 p.m.

Mrs. Barbara Castle: The right hon. Member for Down, South (Mr. Powell) was right to draw attention to the astonishing lack of economic analysis in both the speeches from the Front Benches this afternoon. Indeed, in listening to the opening sentences of the Chancellor of the Exchequer, I found myself wondering why the European monetary system had been proposed at at.
The Chancellor spent a good deal of his opening period in telling us that we need not worry because it would not really change anything. It was that reassuring, low-key approach which got us into the Common Market and which will get us into the EMS, if not now, then inevitably in due course.
In his speech—quite different in tone from the Green Paper and other speeches with more warning and analysis than he has given on other occasions—the Chancellor only told us what the EMS would not do. He told us that we were not talking about fixed exchange rates, and that were not even talking about unnecessarily restrictive limits on the movement of sterling. He said, in effect,"Look how narrowly we have been moving recently. So, it really will not be a restriction on us. As for the snake, there have been 19 realignments between the currencies." He even admitted that the major monetary instability in the world is coming not from Europe but from the United States. It is the instability of the dollar, to which a number of hon. Members have referred, which has really been the disruptive force in the world recently. Yet the Green Paper admits—and so did the Chancellor—that relationships with the dollar of the new arrangements have not even been discussed. This is apparently considered to be totally irrelevant.
Finally, the Chancellor told us that we were not talking about economic and monetary union either. At the end


of that part of his speech, I wondered what the blazes were were talking about because, of course, people do not propose great initiatives of this kind, and hail them as doing marvellously something or other, unless they have some motive. That motive must be either economic or political. If the motive is not to reduce markedly the fluctuations between European countries, its aim must be political. If, indeed, the purpose is an economic one, we were entitled to receive this afternoon a far more searching analysis of what is involved.
I am a little tired of noting the change in fashion which has been taking place recently in our economic jargon. We are told now that the world is disillusioned with floating rates. All I can say is that without floating rates this country would have been in one devil of a mess in the past few years. But now it has become fashionable to decry it, and to decry it without analysis, for then the inference could be drawn that, if floating rates have caused all these disruptions, the right way is to link the exchange rates of the European countries as closely as possible. But, of course, floating rates in the world in the vast few years have been a reflection of the economic turbulence and not its cause.
Indeed, the Government know this perfectly well. In the Chancellor's better speeches and in the better parts of the Green Paper, he drives home irresistibly the lesson that we cannot for long link the currencies of two countries in a fixed relationship when one economy is strong and the other weak. If we do, then in order to maintain the predetermined levels of the value of its currency, the weaker country will either have to throw in massive reserves to maintain its currency at a value which is not economically justified, or it will have to deflate heavily to bring down inflation and reduce its balance of payments deficit. It will then hold its own on these two indices at the expense of growth. Even the monetarists, we are told, are finding these economic implications of the system, as proposed by its initiators, a bit too much.
Incidentally, if we are talking of the need to have greater monetary stability, everybody knows that because of these economic consequences of attempting to link currencies in violation of the under-

lying economic truths, it would mean that if Britain were to go into a system which forced her to link herself to a stronger currency, the mark, she would have to begin by depreciating her currency, as a future safeguard against over-valuation, to a level well below what is economically justified. That is a very peculiar way of getting monetary stability.

Mr. Nigel Forman: Where is the evidence?

Mrs. Castle: Faced with this economic fallacy underlying the EMS, the Government have been laying down the sorts of conditions which would be absolutely essential to avoid these ridiculous consequences. They are spelt out in the eight points of the Green Paper. The House is no doubt fully conversant with them and I have no time to spell them all out. But on the Chancellor's own analysis, the acceptance of these conditions is indispensable for Britain's survival in any kind or form of EMS. Yet here we are, within five days of the summit talks, and it is glaringly obvious that not one of these conditions will be settled or satisfied. We should have had some more indication before now, should we not? These matters have been debated for months and we have to take decisions in a matter of days.
Here in the Green Paper are our basic conditions, and the entry made in the Green Paper against every one of them is"no progress ". How can we, for instance, get a system which will, as the Chancellor says and the Government insists
 provide a basis for improved growth and higher employment
except, as the Green Paper says, with
 net transfer of resources on the right scale 
to bring the economic performance of the weaker country up to that of the stronger country?
Does anybody really believe that the Bundesbank will authorise a net transfer of resources from the Federal Republic of Germany on the right scale? Of course it will not. Indeed, we have not even been given anything in the Green Paper on that major point, except the statement that"concurrent studies"have been taking place as to how it might be achieved.

Mr. Nigel Spearing: I agree almost wholeheartedly with everything my right hon. Friend has said, but does she not agree that the unlikely event of a transfer of resources would put Britain, as a supplementary beneficiary, in the hands of the dominant partners of the EMS? The House was told last night that Sheffield has a 40 per cent. import of steel, mostly from Germany. How could even lots of money from the budget help that position?

Mrs. Castle: I am trying to come to that aspect. We are not within light years of securing even the Government's assessment of what is economically necessary. That is the only point that I am making at this stage. I am trying to prove that the sooner we get away from these"phoney"economic arguments, the better.
If we are talking about a net transfer of resources on the right scale, we are discussing a piece of Socialist quixotry of which I see no signs in the Federal Republic of Germany. If we are not getting such transfers to developing countries, we shall certainly not get resources transferred to this country on the scale to give us the economic convergence to which the right hon. Member for Down, South (Mr. Powell) referred.
When we go through all the other conditions that have been laid down, we find the same thing. We find that there has been no agreement on what should happen if currencies diverge and that there is no guarantee that the strong currencies would have to adjust first. On reserves, the Green Paper admits frankly:
 No element of reserve pooling is yet in prospect.
As for the EMS's much-vaunted alleged contribution to world monetary stability, it is obvious from the Green Paper that nobody is interested.
The economic conditions for Britain's entry, therefore, do not exist and will not exist in five days' time. So why all the fuss? Cannot those of us who are deeply opposed to the scheme just relax? On the contrary, we should be all the more vigilant. The primary motivation behind the EMS, as behind the Common Market itself, is political. It is political pressures that are being put upon us. I am glad to hear Conservative and Liberal Members endorse that view. That is the

central point of the argument, but it is never admitted.

Mr. John Pardoe: We have never said anything else.

Mrs. Castle: I am glad to know that we have reached the point at which it is conceded that this is not an economic argument.

Mr. Pardoe: Not conceded—proclaimed.

Mrs. Castle: It is proclaimed that it is not a question of Britain having to go in for her own economic interests. Now we are really making progress. I am delighted to have such assistance from Conservative and Liberal Members.
We know that the motivation behind the Common Market was political. We spent hours in the House arguing the economic pros and cons. We spent hours in the Cabinet and a whole day at Chequers hearing papers on the economic arguments for and against. We were told that the economic balance was probably so fine as to be irrelevant, but that we should go in for political reasons. That sort of approach has resulted in our being forced into the Common Market on political arguments that embodied our accepting the careful calculations by existing members of their own national interests.

Mr. Dykes: Will the right hon. Lady give way?

Mrs. Castle: No. I do not want to speak for too long and I do not want the thread of my argument to be interrupted. I heard the hon. Gentleman's endorsement of my remarks, and I am grateful to him.
The Common Market was a political alliance struck between France and Germany. There were perfectly legitimate reasons for that. I even welcome it. But the alliance was struck on a basis which was underpinned by a bargain based on their national interests, which were reflected in the formula of agricultural protection plus free trade in manufactured goods. That was excellent for them—a bargain that helped them both—but we were politically pressured to go in on the basis of a formula which is the exact inverse of our national interest.
We were told that the formula would be changed. It should have been changed


before the renegotiated terms were recommended to the House. That is what some Labour Members hoped would happen, but it did not. We got marginal adjustments in the CAP and our budgetary contribution, but we had to leave the rest to faith.
We were told that, once we were in, the other members would not want us to remain weak, that they would come to our aid and would not impose impossible conditions on us. But even the Prime Minister, who helped to renegotiate the terms, admits that we have been weakened. He gave dramatic illustrations of that fact at the Guildhall recently. That is not what we were told when the renegotiated terms were being discussed. On the contrary, we were told that the adjustments would follow as we became"good Europeans ". All that we have done by our political acceptance of Common Market membership on economically disastrous terms is to get labelled as"bad Europeans"every time we try to do what every other member State does, namely, to look after our national interest. That is the exact replica of what is now being developed in the European monetary system.
I agree with the right hon. Member for Down, South that EMS is an inevitable development from the political motive that led to the creation of the Common Market. The EMS is a politically motivated device. The proposals are German proposals designed, quite naturally, to underpin Germany's economic hegemony. France has come in for political reasons that suit her domestic development. For reasons of national political pride, President Giscard d'Estaing wishes to be shoulder to shoulder with the powerful Germans. In addition, the EMS provides a convenient political excuse for the President to enforce at home the restrictive economic policies on which he has set his heart. That is, of course, one of the reasons why the right hon. and learned Member for Surrey, East (Sir G. Howe) wants us in. He hopes that it will be a means of political discipline for tougher monetary policies. They are talking about the politics of the matter.
I predict that we shall play about with this subject. I believe that what will happen—this is where I disagree with the right hon. Member for Down, South—is that,

once the negotiations have finished, we shall be presented with a dangerous situation. The Prime Minister will tell us that Britain is not to join. He will say"For the reasons I have given, it will be economically disastrous." Furthermore, he would not get such a proposal through the House. But he will then say that the other members of the Community have listened to our case sympathetically. Of course, my right hon. Friend will not get the conditions on the scale laid down by the Government, but no doubt we shall be offered, as we were before, some minor bribes.
There has been talk of some gesture being given to us by the Community because of the unfair budgetary burdens that are being laid upon us. This will be taken as an indication that if we go in for the new monetary system all the rest will be added unto us. That certainly did not happen when we joined the Common Market, and it will not happen in this instance. A budgetary adjustment would merely be a piece of belated justice that we should have achieved in the renegotiations anyway. It will not be enough to counteract the scheme's basic fallacy.
We shall then be pressurised once again to show that we are good Europeans by identifying ourselves with proposals which are directly opposed to our own national interest. That is always the test for Britain of being a good European. It is not a test that has to be undergone by anybody else. The other countries are not told that they must give up their own national interest. I predict that the Prime Minister will come back and welcome the scheme as a contribution to monetary stability. He will say that our Common Market partners are showing sympathy and therefore that we must work closely with them. We shall not become full members, but we might offer to become involved in the management, having committed ourselves to carry out parallel economic policies.
All these things will be done on the assumption that we shall join later. believe that that will be the most dangerous recommmendation of all. Nobody would have to face up to stark economic implications which even the Green Paper spells out. This would be a form of creeping membership. It would be done by insidiously breaking down resistance and by fudging the facts. It will


be played in a low key. We shall be told that EMS will not change anything, that we shall not lose our independence or our economic strength. We shall be assured that no unfair burdens will be placed upon us, and all the rest of it. Once again, the European idea and its machinery will have been strengthened on a basis which institutionalises the Franco-German hegemony and which totally ignores our national interest.
I would not welcome the kind of face-saving arrangement suggested by the right hon. Member for Down, South. The drive towards EMU will have been given an inevitable boost. All the time we remain outside, we would be lectured about how we were letting down the European idea. We would be told that we were not being good Europeans. Evenutally we would not be any kind of animal. I resist the idea of that association, or loose arrangement, or creeping membership, possibly even more than I would a recommendation for full membership.
I hope that everybody who takes an interest in these matters read in The Times today—probably one of its last pieces of assistance that that newspaper will give this House for some time—the report of a speech by Mr. Gaston Thorn, the Luxembourg Prime Minister.

Mr. Dykes: A very good speech.

Mrs. Castle: I am sure it was a very good speech from the hon. Gentleman's point of view. That is why it is so bad from mine. I wish to quote two passages from it. Mr. Thorn has been lecturing us, and by now we are used to lectures about how we do not wholeheartedly embrace the European idea. He puts forward some truths about the concept of EMS:
 You cannot claim solidarity in order to benefit from greater transfers of resources and then uphold your sovereign rights to fend off any idea of a Community discipline, with regard to your economic policy in general.

Mr. Dykes: Quite right.

Mrs. Castle: Mr. Thorn is quite right, and I agree with him. That is why I say that, even if the conditions are fulfilled, there is such a danger in the EMS. It has been deliberately proposed by those who support it as a step towards economic and monetary union. When we are told,

even from the Labour Front Bench,"EMS is not EMU ", we must realise that those who make such statements are merely trying to blindfold us and to distract us from the realities. Nobody in Europe believes that it is anything other than a step towards economic and monetary union. All the honesty in this fight comes from the anti-Marketeers. We are treated to no such honesty from the pro-Marketeers.
I conclude by reading a paragraph from the speech of Mr. Thorn:
 There is no doubt in anyone's mind that such a monetary system cannot function on the basis of simple inter-governmental co-operation. That would indeed be the best recipe for failure. What we need is, very soon, in some form or another, an efficient, common decision-making body.
That is the choice that faces us tonight. Therefore, conditions or no conditions, I hope that this House will tell the Government to refuse to touch the EMS.

7.8 p.m.

Mr. Russell Fairgrieve: It is a great privilege for me to be called to follow the right hon. Member for Blackburn (Mrs. Castle). However, I am sure that what I heard in her remarks was not the voice of international Socialism and the brotherhood of man. Perhaps I can put the right hon. Lady out of her agony by telling her that I believe in a European monetary system, a European currency, a Federal Europe, a European foreign policy and a European defence force. If that helps, so much the better.
My few remarks will not be so erudite as those of other contributors, but will possibly be rather more blunt, with a little more political undertone.
Early next month the leaders of the nine members of the European Community will meet in Brussels to take another fundamental decision affecting the future of the Community. It is whether to initiate from 1st January next year a European monetary system. What a pathetic figure Britain cuts as Europe moves towards this bold and imaginative scheme. Here is a plan to stabilise currencies, to build up reserves, protect savings and employment and to bring prosperity and security to Europe's workers. What does the sick man of Europe do as France and Germany stride manfully forward in the lead? An Italian


Prime Minister has to visit our shores to steady the faltering steps of a British Prime Minister. Do this Government mean to condemn our country to a second class existence in Europe because they have not the guts or gumption to get in, fight and lead? Furthermore, it looks more than likely that Eire will enter the scheme whether we do or not. This would end the alignments of Britain's and Eire's currencies and, if Eire were in and we were out, it is probable that the Irish pound would proceed fairly quickly to strengthen against the £ sterling.
What is the near unanimous view of British industry? It is that we must go in and this is from the people who are going to have to export and compete with our partners in the EEC. They know that there is no easy alternative, no way of going around this hill to get to the higher ground. They know that we cannot opt out of the world around us.
Surely we have learned our lesson by now and are not once more going to miss the European bus as it changes into a higher gear. Currently we are complaining about the operations of the common agricultural and fisheries policies, but had we been in Europe at the start we should have been involved in the shaping of these and would not have our present problems.
If we do not go into the European monetary system at the outset, again decisions could be taken that will not be to our advantage and when in the end we join, as we will have to do eventually, we will have all the problems caused by our not being in at the start.
When we study the Government's Green Paper what do we find? Some 12 pages of vague and general background notes and then with bated breath we find on the final page the magnificent and awe-inspiring conclusion—
 The Government cannot yet reach their own conclusion on whether it would be in the best interests of the UK to join the exchange rate regime of the EMS as it finally emerges from the negotiations.
If it were not so sad, it would be comical and reminds one of the old Army joke of the young, green, and newly commissioned second lieutenant who was drilling his platoon under the experienced eye of the veteran sergeant-major. As the men marched towards the cliff edge,

with the youth trying to stammer out the correct command to change direction, the sergeant-major bawled out"For God's sake say something, sir, even if it's only good-bye".
Again one is forced to conclude that the indecision here is for similar reasons as indecision in other spheres. It is an attempt to placate those Labour Members who are hostile to the whole European ideal, those who would deny to the British people the standard of living of the French or Germans. Entering the scheme will mean that financial and industrial disciplines will have to take place in this country, whether we like it or not, but such and other policies are anathema to those who do not want to see a Britain strong and free, but rather one moving towards the standard of living and political concepts found behind the iron curtain..
Let us hope that sense, courage and the real welfare of the British people prevail and this time we take the right decision at the outset.

7.12 p.m.

Mr. Bryan Gould: There are those who urge us to approach this important matter as though it were simply a matter of faith. Some of them do so overtly on the basis that they have a political commitment to European union. I understand that argument, and I profoundly disagree with it; but from their point of view that entitles them to say that the economic detail and the consequences of this arrangement for this country are of little importance to them.
There are others who do the same sort of thing but on a much more superficial level. There has been a lot of talk about missing buses, for example. All that one can say about that comment is that those who urged us in matters such as the common agricultural policy and our budgetary contribution to get on the bus and then to worry about the destination and the fare, seem to have learned absolutely nothing from experience.
By contrast, I believe that we have an obligation in this House to consider the economic arguments and the economic consequences which would flow from an EMS. I wholeheartedly agree with the Government's approach in this respect at least. They, too, are looking very closely at what is offered.
I believe that the immediate significance of an EMS for this country would simply be that the £ sterling would be held at a higher rate than it would otherwise. I know that the Chancellor of the Exchequer said that this was not necessarily so, but I hope that he will permit me a little scepticism here, because on past form, and from what one knows of my right hon. Friend's present policies the stability which would come from this arrangement would be a stability upwards rather than downwards.
While the consequences of a higher value for the pound would vary somewhat according to the domestic policies which might be followed, they would certainly include a substantial loss of competitiveness and that, in turn, would lead to a loss of export volume, increased import penetration, rising unemployment and falling output. All the models agree on this.

Mr. Michael Morris: Will the hon. Gentleman give way?

Mr. Gould: I have only just begun. Perhaps the hon. Member will intervene later.
It is the support of the Germans which has made this scheme a serious proposition. Until Chancellor Schmidt gave it his support, it was no more than a mad gleam in Roy Jenkins's eye. The Germans recognise, even if we do not, that the scheme has major implications regarding the whole question of competitiveness. The Germans want the scheme in order to anchor the deutschemark to a group of European currencies so as to hold the value of the mark down, particularly in relation to the dollar, so that they would thereby be enabled to preserve the enormous competitive advantage which they still enjoy and which is reflected in their massive trade surplus.
All those who fervently believe and hope that an EMS would be a step towards an international arrangement should recognise that the motivation of the prime movers in this arrangement is an anti-American one, and that, far from it being a step towards an international arrangement it is a step in the opposite direction. An EMS would, in fact, be a deutschemark zone.
An EMS therefore makes sense for small economies which are in the shadow of the German economy, but it certainly does not—and ought not to—make sense for us when Germany is by no means our major trading partner. We do a very small proportion of our trade in deutschemarks. The dollar remains of overwhelming importance to us. That is the arrangement for which we should be looking if we believe that currency stability is a useful objective.
The German objective in all this is clearly seen in their insistence that the numéraire to be used should be the parity grid system rather than the basket system. The whole point about that is that it imposes an obligation on every other currency to stay in line with the deutschemark rather than the other way round.
Yet it is precisely the Germans against whom we can least afford any worsening of our competitive position. In our trade with the Germans this year—as I pointed out in my evidence to the Select Committee—we have a deficit in manufactured goods—I said then—of £1,700 million. I was wrong. These things move very rapidly. In a recent Written Answer I was informed that the figure was £1,800 million—worth perhaps 400,000 or 500,000 jobs in British industry.
There is no solution to our problems unless we can get a substantial reduction, if not an elimination, of that massive deficit with the Germans. We have already, by virtue of Common Market membership, given up the power to use tariffs or import controls to defend ourselves against that German competition. The Germans refuse to reflate, to revalue, and if we were to accept an EMS we would thereby close off the one major option available to us.

Mr. Eldon Griffiths: I very much respect the care with which the hon. Gentleman has examined this subject, and not only here. He will perhaps have seen in The Times this morning the article by his hon. Friend the Under-Secretary of State for Trade, in which, dealing with the real problem of the deficit in our trade with Europe, and particularly with the Germans, he made the important point that the import-export ratio is the important matter to look at, and that, although we have these disturbing deficits, the proportion of our imports from


Europe that continues to be covered by our exports has not diminished.

Mr. Gould: I am grateful to the hon. Gentleman for the way in which he made that point, but, with respect, I read the article to which he refers. My hon. Friend was, of course, dealing with trade with the Common Market. I am dealing with our trade with West Germany, and that is what matters to us. It is no use saying that we are doing well with other countries if we are being clobbered by the Germans. They are our major competitors and it is with them that we have to balance our trade.
It is sometimes argued that from our experience of the snake in 1972, this arrangement could not last very long and that therefore the scheme would not do us very much damage: we would come out before it hurt very much. It is certainly true that it is in the nature of a fixed arrangement of exchange rates that there is likely to be a speculative attack on the weaker currencies. It is a one-way bet for speculators. Therefore, I believe that the pound would come under speculative attack in an EMS and that we would have to break out fairly quickly. The danger of this scheme is that it offers the prospect of a large European intervention fund, and on all known form we would not resist the temptation to turn to that fund in order to supplement our own reserves in an attempt to hold the £ sterling up for much longer than would otherwise be the case. Whereas we lost £2,500 million in 1972 in seven weeks, I believe that we could lose a great deal more over a longer period under this arrangement before we had to come out. The result of that would be that as well as inflicting the damage of loss of competitiveness through an over-valued exchange rate, we would end up having contracted substantial indebtedness to our European partners.

Mr. John Roper: My hon. Friend will accept, of course, that the EMS is not exactly the same as the snake, although the Bremen document suggested that it would be built upon it. Does not the fact that there have been 19 changes of parity within the snake suggest that there would be changes in parity at the appropriate time, and that an EMS would not have the effect that my hon. Friend is suggesting?

Mr. Gould: That is a perfectly valid point. I wonder whether my hon. Friend would he kind enough to wait for my comments until I get to the distinction which I would draw between the snake and the EMS and, indeed, other forms of monetary co-operation.
I believe that it is much safer to assume that, if we were to join an EMS, we would do so with the firm intention of making it work. The economic risks involved would not be worth taking unless we were to make that degree of political commitment. Therefore, the economic consequence is likely to be not only that we use a great deal of our own money and, indeed, other people's money to support the exchange rate, but that we also subordinate domestic economic policy to that objective. In very familiar ways, which we have gone through so many times before, we would subordinate all our domestic objectives to the international system to which the Government felt that they had committed them selves.
After all, the problem of trying to defend a fixed exchange rate—indeed, I would argue, an over-valued exchange rate—is very familiar to us. No country has a longer, a more damaging or a more, bitter experience of trying to do precisely that. Although the terminology may he different now, although we now talk about controlling the money supply whereas we used to talk about excessive demand, and although the tools of analysis may have changed, and even the theoretical basis of what we are doing may change, in practice the consequences of the actions which would be required to sustain this system would be indistinguishable from our old friend in the 1960s—severe deflation.
That would be the so-called remedy. Absolute priority would have to be given to getting our inflation rate down very quickly to German levels, and indeed. on one argument, which I personally support, to under German levels. It is arguable that an economy such as the German economy, which is export-oriented, can afford a higher domestic rate of inflation for a given level of competitiveness. So we would have to get down our inflation rate from 8 per cent. to, say, 2 per cent.. in very swift order indeed.
The Treasury estimate—I know that the Chancellor of the Exchequer now disowns


all Treasury estimates; neverthless, these are the only estimates that we have—is that the deflation required, the amount to be taken out of the economy in the first year of an EMS, would be between £1,500 million and £2,000 million, with more substantial deflation in the succeeding years.
The London Business School says that it does not think that this is achievable, and that it thinks it would cause great damage if we were to try to achieve it—and that from monetarists whom one might suppose otherwise would be expected to support this type of scheme.
Indeed, the monetarists who gave evidence to the Select Committee make the point that a fixed exchange rate system actually makes the whole business of setting and trying to achieve domestic monetary targets quite irrelevant. They also make the point that a stable exchange rate, though not a fixed exchange rate, is the consequence of correct monetary policies, and not the other way round. In doing that, they really focus on the logical difficulty of the basis of an EMS. That is that if we could do all the things which would be necessary to make an EMS work, we would not need it
The debilitating effects of such a deflationary policy are well known to us. They would add to the damage that we should suffer as a result of the loss of competitiveness. As we discovered in the 1960s—it is the recurring motif of British economic policy for a century, for we had discovered it on many previous occasions as well—deflation inhibits innovation and investment and does cumulative damage to our industrial base.
Furthermore, there is a logical difficulty with a policy based on deflation. If it is a pre-condition for the success of a policy that demand should be restricted, as soon as that policy produces growth and demand rises, intervention has to take place to restrict demand—a familiar recipe for stop-go.
These policies are not even particularly effective as counter-inflationary policies, because the measures that a Chancellor would be required to take to try to get down the inflation rate would include raising interest rates. We have seen the first instalment of that already. He would

also have to raise taxes in order to take money out of the economy. These actions would put up costs and make it so much more difficult to achieve yet a further requirement—an extremely tight pay policy.
The whole effect on the real economy, the effect of nil or virtually no growth, would generate, as it always does, high money wage claims. So the prospects of actually succeeding in getting our inflation rate down under such a policy are virtually nil.
Some suggest that the stability engendered by a fixed and, indeed, an over-valued exchange rate, would hold down costs and eventually produce growth. I do not know how that can be argued. Even those who put that suggestion forward accept that there is no practical evidence or experience to support it. They accept that it is purely an argument in theory. Indeed, all our own experience contradicts it. The virtual certainty is that the hoped for stability would become paralysis long before the benefits of an over-valued exchange rate would feed through into the domestic price structure, and that long before that we should have suffered enormous damage from loss of competitiveness and from deflation.
Let us take one example. Could it possibly be argued that a 12½ per cent. minimum lending rate achieved by a 2½ per cent. hike overnight will produce stability, and then confidence and growth? Surely not; no one is going to argue that. Yet that is what is in store for us hi this theory and this approach to the problem.
I believe that these measures would certainly be so damaging that we would need to turn to an external authority in order to make them stick. Indeed, a Government formed from the Conservative Party might actually welcome the opportunity of saying to the trade unions and to the working classes, as unemployment mounted to 2 million"It is not we who are doing this. It is the wicked European monetary fund ". Be that as it may, there can be no doubt that implicit in the whole notion of a European monetary system with a common exchange rate is a total co-ordination of all monetary policies. of monetary targets, of public expenditure levels, and of interest rates. That is all there. When one adds to that the fact that we have already yielded up to the


Common Market the power to decide our industrial policies, increasingly, and our trade, agricultural and fishing policies, one asks what is left, if that is not economic and monetary union.
It seems to me that that is the context in which we must look at this proposal. That is what distinguishes this proposal from a regional IMF or from a snake. This is what makes the EMS quite different from those proposals and arrangements. The Government say that they can assure us that we are not making progress towards European economic monetary union but all that one can say about that is that we have heard that sort of assurance before. Only six months ago we were told that an EMS was simply not on the agenda—yet see how far we have travelled in that short period.

The Chancellor of the Duchy of Lancaster (Mr. Harold Lever): Who told my hon. Friend that?

Mr. Gould: My right hon. Friend the Prime Minister told me that when I asked in a question on this very subject in April. I should be very glad to give my right hon. Friend a reference to the appropriate column in Hansard.
I make two concluding points. It is sometimes argued that a transfer of resources could make this sort of scheme acceptable to us. The mere fact that that point is made is an interesting recognition of the fact that we might well suffer damage from such an arrangement for which we should need some sort of compensation. But, as has already been pointed out, it is quite unrealistic. There is absolutely no evidence that the Germans have even remotely in mind the transfer of resources to us—which is, after all, a euphemism for subsidy—on anything approaching the scale which would be adequate.
Let me let hon. Members into a piece of calculation that I have recently done. If we were to receive from the Common Market a level of transfer of resources on the same scale as Northern Ireland receives resources from the United Kingdom, that would amount to the transfer of a grand sum of £33 billion. Simply to mention the figure is to demonstrate how laughable it is to imagine that the Germans, or anyone else for that matter, might even be thinking in terms of 1 per cent. of that type of total. Yet that is

seriously suggested as a possible condition which would enable us to join an EMS. Even if it were possible—I agree with others of my hon. Friends who have made this point—how insulting it is to the British people that they should be content with a future as social security claimants in a wider German economy. The regional imbalances, as the right hon. Member for Down, South (Mr. Powell) made clear, are just about tolerable in a political community such as the United Kingdom, but they would be quite unacceptable, because the political will would not be there, when projected on a Western European scale.
It is equally unlikely that, as a kind of bonus for joining the EMS, we could get some fundamental reform of the common agricultural policy. Surely one of the reasons why the French, somewhat surprisingly, support the proposals for EMS is their recognition that diverging currencies are a great threat to the CAP, and the CAP has never looked more ramshackle and irrational than under the influence of green currencies, monetary compensation amounts and so on. They see an EMS and stable fixed currencies as a means of defending the common agricultural policy against challenge. Therefore, the notion that we can use the selfsame mechanism to change the CAP is totally ludicrous.
I believe that it is inconceivable that we should join an EMS on anything like the terms which might be available to us. I agree with the right hon. Member for Down, South that the Prime Minister may speak kindly of this arrangement, wish it well and do all that he can to help it, except join or do anything practical about it. I hope that is so. But I fear that my right hon. Friend the Member for Blackburn (Mrs. Castle) may be nearer the mark. I think that we are in for a commitment to pursue parallel policies which, it is hoped—I think futilely—will eventually open the way for us to join the EMS. If so, I believe that in many ways would be more damaging than the real thing.

7.32 p.m.

Mr. John Pardoe: The hon. Member for Southampton, Test (Mr. Gould) will not be surprised to find that I disagree with him almost entirely. But I will honour him at least by saying that I disagree with him at a higher


level than I disagree with most of those who have spoken on the same side of the argument during the debate.
We have now had seven Back-Bench speeches, and only the hon. Member for Aberdeenshire, West (Mr. Fairgrieve) has so far argued in favour of our joining the European monetary system. That is no comment on your selection of speakers, Mr. Deputy Speaker, because you would not know how they were going to speak before they spoke. But it is a terrible warning to those of us who believe in Europe.
The battle of Europe is not yet over. These people are fighting it all over again. That is what the argument over EMS is all about, and it does not make sense for those of us who are Europeans to whisper the case.
I say this in some warning to the Conservative Party which, after all, ought to be bearing the major brunt of carrying this advocacy in the country. In an article in The Guardian on 13th November, John Palmer, the Brussels correspondent, did a round-up of views on this question. His summary of the Conservative Party's views earlier this month was as follows:

The Conservative Party, although nominally ' the party of Europe ', has been less than enthusiastic about the whole project. Declarations in favour of EMS by ardent pro-Market MPs—along with the Liberal Party, which is almost entirely in favour

—I do not know where the word"almost"came from—
 have warned of the danger of Britain ' missing the European boat yet again.' The anti-Market Tories are predictably against, but, more surprisingly, Mrs. Thatcher and her monetarist advisers in the Tory leadership have maintained a very cool attitude, waiting to see the small print of the final proposal before formally committing themselves.

It is all very well to wait and see the small print—we should all read it very carefully—but, as I indicated, the balance of argument in the debate so far means that those of us who want Britain to make a success of Europe had better start speaking up loud and clear right now.

The right hon. Member for Blackburn (Mrs. Castle) received a sudden blinding flash during her speech when she realised that for some of us this was a political argument. I find it odd that she has woken up to that only at this stage of

the debate about Europe. One of the strongest arguments for not joining the European Parliament in an individual capacity is that one will at least be saved being lectured by the right hon. Lady. In fact, her main economic argument was a piece of abject defeatism—the fear that Britain could not live with the European economic superman. That is what her argument boiled down to.

The right hon. Lady's most astonishing remark was that somehow this Europeanism was the result of French and German national interests wanting to join those two countries together. How fortunate for my generation that the national interests of France and Germany dictate that those two countries wish to live in amity and co-operation. How much better it is that their national interests should dictate that for our generation than what they dictated for previous generations.

Looking at this matter from the purely technical and economic angle, obviously the Government, the House and the country face an appallingly difficult decision. Those who are opposed in principle to the European idea will concentrate on the technical and economic matters, and some of those who are Europeans in principle will tend to disregard such things. I am proud to be a committed European and I shall try to steer a course between these two positions. I certainly do not accept that it is Europe right or wrong either about the European monetary system or our original decision to join the Common Market.

I turn now to what the Green Paper rightly starts with, namely, Bretton Woods. Many of the arguments advanced at a technical level against forms of monetary stability are the same. Reading reports of the debates which took place in the House in the 1940s, we find that everything has been said before. The arguments were the same and very much the same kind of people who were against the monetary stability which came from Bretton Woods were against Bretton Woods at the time.

Bretton Woods was the child of John Maynard Keynes. It was the most astonishing beneficial result of intellectual endeavour that this century had to offer. It was, at a single stroke, more directly responsible for the prosperity of the postwar years than any other single act.


The great thing to learn from Bretton Woods, as the Green Paper makes clear, is that it did not usher in a regime of fixed exchange rates and it did not attempt to do so. "Fixed but adjustable exchange rates"was the phrase used. It is used again and again in the Green Paper, and the Chancellor correctly reiterated it this afternoon.

The major weakness of Bretton Woods was that it was more fixed than adjustable. The techniques for adjustment were not sufficiently thought through and worked out. There was no adequate machinery for adjustment. Therefore, many countries—certainly Britain—got stuck with the wrong values to their currencies.

Moreover, the burden of adjustment was all one way. It was a burden imposed on, for want of another word, weaker economies rather than on stronger economies. We cannot emphasise too often that weak countries are not guilty. Strong countries are not virtuous. This argument is often got wrong.

When Keynes went to Bretton Woods, he proposed a vastly more ambitious system. One of the main elements of that system, which unfortunately was not accepted at the time, was the scarce currency clause. That would have been an effective way of imposing penalties on those countries which ran their economies in such a strong way—" hard money men"was the phrase used by the right hon. Member for Chipping Barnet (Mr. Maudling)—as to damage the economic interests of the rest of the world. Unfortunately, those powers were not used, almost inevitably because the IMF gets power over an economy only when that economy needs to borrow money from it. It has virtually no powers—because no one would give it the powers which Keynes was advocating—over the strong currency countries. Of course, Keynes was also very much more ambitious in that he wanted a very much larger fund to finance and back the IMF. Had he had his way completely and utterly, I dare to suggest that Bretton Woods would have outlasted the catastrophies of the late 1960s and early 1970s, and would even have survived the 1973 hike in oil prices, because it would have had the resources to cope with the problem.

Therefore, it is no good saying"We do not want any new system of monetary

stability because Bretton Woods failed ". What we want to do is to build on the success of Bretton Woods and to learn the lessons of why it failed to succeed. Those lessons are all in Keynes's original memorandum and are actually enshrined in the debates in this House at the time when Bretton Woods was signed.

The lessons for all are these. First, that there is a need for a sufficient fund. Of course, no fund can be large enough to solve the problems of fundamental and long-term disequilibrium. We all accept that. But the larger the fund, the better it will be and the better it will work. I have always believed that the only major economic reason why Britain should go into Europe was that it would enable us to pool the European currency resources, behind sterling and the other European currencies, and that that would give us the stability which we desperately needed. That is almost the only economic argument that I ever advanced during the whole of the debate on whether we should go into Europe.

I have already referred to flexibility. The crawling peg has already been mentioned. That was why the Liberal Party came out in favour of the crawling peg back in the 1960s—because it seemed to us to be a way of enshrining flexibility into a too rigid system. Of course, even within the 6 per cent. limit which the Chancellor mentioned, presumably what the crawling peg would do would be to lay down some regulations that no currency would be devalued or revalued against the basket or the grid—I hope the basket—by more than per cent. per month, or what ever the period is. That would give us a certain short-term flexibility but, in addition a substantial stability. If we had a 6 per cent. limit in total, as the Chancellor indicated this afternoon, I think that that would be the best way of dealing with the matter.

There is then the problem of the scarce currency. Paragraph 10(iv) of the Green Paper mentions this. It says that
 the system should impose obligations on its stronger members symmetrical with those falling on its weaker members; ".

I regard that as a very important consideration indeed. When we consider Bretton Woods, we also have to consider one other difficulty. Bretton Woods occurred at a time when the world had


suffered a great international shock. namely, the five years of war. That shifted the balance of world opinion from nationalism to internationalism. It is sad that it is exceedingly difficult to recreate that sense of internationalism other than by shock. We have to do it by argument and persuasion. Nationalism is now fashionable again, and internationalism is out of favour. It almost puts me in mind of the remark by Robert Graves a couple of years ago when he said that this generation needed a war and could not have one. We ought to be able to do it without that kind of shock. We have to do it, and I hope that we can.

Mr. English: The hon. Gentleman talked about the necessity for obligations to be symmetrical and quoted from the Green Paper. I should like to ask him a question similar to the one which the Chancellor asked the right hon. and learned Member for Surrey, East (Sir G. Howe): if the system was so constructed that the other eight conditions did not come to pass, would we still join?

Mr. Pardoe: I shall deal with that point later.
What exactly are the major fears of our entry? They boil down to the fears about inflation. It is a counsel of despair. Many of the opponents of EMS are absolutely committed anti-Europeans, but their economic argument is that Britain is so deficient in controlling its inflation rate that there is no way in which we shall ever bring our inflation rate below the average of our European partners. Therefore, as the right hon. Member for Blackburn said, if we were going in we would have to devalue massively before we entered. But that implies that we would have to devalue massively anyway. If the right hon. Lady were right, that would be the case whether or not we entered.
I do not accept that counsel of despair. We have to ensure that we can get our inflation rate at least down to the level of the average of our major competitors, otherwise we cannot live in the same economic world as they do. It is not just a question of living in the same Europe—we cannot live in the same world. After all, whatever happens, we still have to trade in the same markets.

If one tries to assess the economic advantages and disadvantages, one can get views from both sides. The Association of British Chambers of Commerce takes the view that
 Entry into the European Monetary System is essential for the prosperity of British business and the development of the British economy ".
That is a splendidly optimistic view. One then turns to the extraordinarily pessimistic Expenditure Committee report,"The European Monetary System ", which states on page 19:
 We can only say that none of our economists nor the clearing banks would at present advise immediate entry ".
That is a very gloomy view indeed. Rather like the Chancellor, I do not accept all the figures which come out of computers, whether they are in my favour or against me.

Mr. English: We stated a fact, not an opinion.

Mr. Pardoe: Either of those views could be true. Frankly, it is a pretty futile endeavour to guess which is true in the long term, because how can one forecast that long ahead? I do not think that any computer models will help us.
There is also the argument about whether we want fixed exchange rates or flexible exchange rates. Obviously, we want flexible exchange rates, but that argument has not really been made today. No one who argues for EMS believes that we want absolutely rigid, controlled fixed exchange rates. We do not. These certainly will not be fixed.
I must admit that in the 1960s I was much in favour of devaluation of the pound. I felt that we delayed that devalution far too long. I was also in favour of freer exchange rates. But I was never in favour of totally free exchange rates. That was why we argued for the crawling peg. However, I must admit that I have changed my mind somewhat on the balance of the argument. no longer think that this great freedom to float—even within pegs—brings a sufficient or prolonged increase in competitiveness to make it worth while. The monopoly power of the wage bargaining system in Britain will inevitably ensure, and certainly has ensured, that competitiveness fades very quickly and that the increased price factor works


through to the economy all too quickly so that one gets very few benefits from it.
The danger—the hon. Member for Test is delighted, because he does not regard it as a danger—is that if we cannot get prolonged competitiveness by devaluation the only other thing to do is to go for import controls. To the hon. Gentleman and to Mr. Wynne Godley, that is exactly what the argument is all about. We are then back in pre-Bretton Woods. We are back in the situation which Keynes devised Bretton Woods precisely to answer—the turmoil, misery and decimation of the inter-war years. I certainly do not want to go back to that.
We are not debating whether EMS should exist. There is clearly a strong political commitment to this system in other European countries. Therefore, the system will go ahead with us or without us. I doubt whether the economic consequences of not joining would be catastrophic in either the medium or short term, and I do not believe that they are measurable with sufficient accuracy to enable us to take our decision on that basis. Therefore, it is a political decision at the end of the day. We shall be the only non-entrants if we do not go in. There may be some doubt about Ireland, but almost certainly we shall be the only major country in Europe that will not he in the system.
What will be the consequences of that for our reputation in the world? It will be thought that the British economy is too weak and that the British so lack confidence in their ability to defeat inflation that they cannot join. That will be the world's measure of Britain's economic impotence.

Mr. Gould: Is the hon. Member suggesting that there is some rule to determine the strength of currency according to its loneliness? Has he looked recently at the Swiss franc?

Mr. Pardoe: If I could export one-tenth of my labour force in seven years, I too could have a good currency and a good exchange rate. There is nothing easier than exporting one's unemployed. That is the easiest way to solve all economic problems, and it is the major single reason for the Swiss franc's position. There is another reason which the hon. Member for Test will not like. Only

about 15 per cent. of the Swiss economy is in the public sector. That is a very small amount.
These are the consequences of our failure to enter—the consequences for our political future in Europe. Hon Members sould make no mistake—this is a political act.
The right hon. Member for Chipping Barnet said that he was in favour of a united Europe but that he did not want to take any of the steps getting there. This is a circular argument. One wants political unity, but one will not take the economic steps. At the end of the day, of course, the right hon. Member would not take the political steps either. One is constantly offering excuses.

Mr. Maudling: I said that I did not want to take any premature steps that would lead to a stumble.

Mr. Pardoe: If in history man had always resisted the temptation to take any step into the future for fear that he might risk an ankle or stub a toe, we would still be in the dark ages. I sometimes think that in Chipping Barnet they are still in the dark ages. We shall try to lead them into the light.
There are many in Europe who see the European monetary system as a halfway house to a single European currency and full economic and monetary union. Some hon. Members say that that is a terrible thing. I say that it is a splendid thing. That is what we should be doing. If this is a step towards full union—and I hope that it is—the sooner we take it, the better. British policy towards European unity has been one of the most disastrous chapters in modern history, characterised by a wilful refusal to play our European role.
We have missed every European opportunity that has offered itself, and the British people are now paying the price. Europe was fashioned by other hands for other purposes. Had we taken our chance at the beginning, it would be a different Europe, and Britain would not be paying the price now. We would be getting far more advantages and far fewer disadvantages. Since joining the EEC British policy has been lost in a kind of mid-Channel fog.
This country is now being asked to make a firm and imaginative political


decision. If we fail to join the EMS, it will be because we are incapable of taking great decisions, and because we are a little nation of mean-minded ditherers, self-condemned to pettiness. That is why we must join it, and join it now. Let us have no nonsense about joining in a month, or in a year or two when somehow we will have got the British economy into a better position. That will not happen. There must be no delays: 1st January is the date.

7.55 p.m.

Mrs. Winifred Ewing: It is extraordinary to reflect that it was the Liberal Bench that carried the decision to enter the EEC—one of the biggest radical constitutional changes that has ever occurred in this House. Yet it was the Liberal Bench also that voted for a 40 per cent. majority for the Scottish referendum. That certainly did not obtain in the EEC referendum. Therefore, I do not hold the Liberal Bench in a great deal of respect.
As one who has regularly questioned the Prime Minister about economic and monetary union, I find that I have obtained answers which quite categorically state that the Government's policy was not to enter economic and monetary union. One of these answers was given to me not so very long ago.
I can understand the arguments in favour of EMU, but I do not agree with them. Could we have some basic honesty as to what we are about with the EMS? It is the change of one letter—from EMU to EMS. As recently as 13th November the Government were reported as saying they would not join the EMS because it was unworkable and incomplete. Now they seem to be accepting that step but they are claiming that it is not the same as economic and monetary union.
I cast my mind back to the"Yes"pamphlet issued for the referendum. One of the assurances given at that time was that we would not join an economic and monetary union.
This is a very unreal debate because we all know perfectly well that the Government, having turned their backs on everything they have said up to now, are on the slippery slope. Therefore, we should be talking about a single currency because that is what this House is about

to commit itself to. It is doing it by gradual stages, because it could not get away with doing it openly.
Even when Ireland was mentioned there was a great sense of unreality from both the Front Benches. Ireland wants to sever its last umbilical cord with England and has every intention of going in, whatever the United Kingdom may do. That is a fact and it was rather glossed over in the speeches from the two Front Benches.

Mr. English: I do not know any more than most people what the Irish Government will decide. If the hon. Lady is right, we would all be interested to know where she got her facts from because in the debate in the Dail the Prime Minister of Ireland very carefully avoided saying any such thing.

Mrs. Ewing: He avoids it, but it is my impression gleaned in the European Parliament from meeting the Irish Prime Minister and Ministers from the Irish Republic that they intend to do this. I really believe that, and I am prepared to put myself on the record as saying that I base it on the meetings I have had with senior politicians of the Government of the Republic.
The reality of this debate is about the German Government's concern for the mark against the dollar. That is what we are really talking about and the sooner we admit it the better. We have been told that one of the advantages is stability for investment and we have been given some nice-sounding phrases. I have noted one or two of them—" a unified currency to stabilise Western economies ", for example.
Let us look at the other side of the coin. Is it the case that the weaker economies—and Britain is the third poorest nation in the EEC—can manage to keep their currencies inside such a system only at a fearful cost in deflation and unemployment? Will there be a devaluation of the pound in order to make a sensible move at the moment of entry into the system? Are these serious possibilities to be glossed over?
I have a slight fear that Parliament is being asked to rubber-stamp something. At one time this country was totally against such a system. There were total denials. Now there is a change of a letter in the initials—we are talking about


a monetary system, not union. However, there is total denial of our going on to union. I wonder whether we are being asked to be a kind of rubber stamp for something that we were told at the time of the renegotiation and the referendum was not on.
The TUC is opposed to the proposal. Even the CBI is really opposed to it. One might have thought that that fairly conservative-minded body would have had a different view, but it attaches many conditions to its support. It would take too long to read them all, so I shall read just one of six conditions that the CBI sets before it can give its seal of approval. It says that it
 could only approve it if the introduction of the scheme was accompanied by arrangements for a better balance between contributions to, and benefits, from the EEC.
We recently had information from the Government, based on the Commission's figures, showing that Britain, the third poorest country of the EEC, is the second largest net contributor. By next year, if the formula is not changed, it will be the largest net contributor.
It is all very well for people to make idealistic statements. The hon. Member for Aberdeenshire, West (Mr. Fairgrieve) uttered a few purple passages about being strong and free. Could we please tell that to the fishermen? They are not strong or free. As the Minister of Agriculture, Fisheries and Food once put it to a meeting of hon. Members with fishing interests, if we had not entered the EEC we should have had a 200-mile limit for the United Kingdom. Now we cannot get a sensible limit that will give us a fair deal for a vital industry, one that is not only an industry but a way of life in many parts of Scotland, and indeed of England and Ireland.
I should like the Government to come clean. Will not it be more difficult for members of the EEC that are in the system to create regional policies to try to correct regional imbalances? Successive Governments of both parties have spent a great deal on trying to cure regional imbalances. The Regional Fund of the EEC is a drop in the bucket compared with what has been spent by this House. We still have not solved the problem of regional imbalances. Is it imagined that if we enter the scheme Germany and France will allow us the scope that we

have now, such as it is, to spend money on trying to correct our regional imbalances?
After all, since the United Kingdom joined the EEC, the rich have got richer and the poor have got poorer. The problems of the peripheral areas have got worse. We know that to be a fact. Shall we have the same scope to pursue our own economic policies, to try to solve our own economic problems, if we join the system? What restrictions will it impose on us?
I believe that we are entering a kind of economic straitjacket. Certainly, we shall have less flexibility. Will the Government admit that, or shall we simply pretend that the policies we can pursue to solve our own problems will not be restricted? As I indicated when the right hon. Member for Down, South (Mr. Powell) was speaking, Scotland is singularly able to talk about the matter, because we are the guinea pigs for economic and monetary union. We entered one with England in 1707, when we gave up the right of decision-making at home—that was before the days of universal suffrage—to this House.
All those hon. Members who have not been to see the ravages that the Union has wrought in Scotland are welcome to see what happens when one loses the right to take decisions to cure serious regional problems on one's own doorstep. The problems seem to remain for generation after generation, if not for century after century.
Is it sensible to support a system that would tie together the currencies of very divergent European countries? How do the Government justify that? Is it not a kind of shibboleth that we are pursuing, without there being any real benefits?
Could it be that France and Germany see a great resource off our coast, one which we on the SNP Bench are pleased to call Scotland's oil, because it is under the jurisdiction of Scots law, and which this House is pleased to call Britain's oil? When I go to the European Parliament, it is interesting to hear the United Kingdom nationalistic speeches made by hon. Members from both sides of the House, telling the Europeans"Hands off our oil, please." They even come from such extraordinary sources as the hon. Member for Fife, Central (Mr. Hamilton), who I notice


has not been here throughout the debate. All of a sudden one can be nationalistic in a United Kingdom sense when the matter in question touches on a resource such as oil.
Can the Government spell out the advantages of the system? The Chancellor's opening speech, to which I listened most carefully, did not spell them out. I think that the hon. Member for Cornwall, North (Mr. Pardoe) made the best case for approving the system, but the Government have not spelt out exactly what the advantages are. I hope that as a result of what I have said the disadvantages can be seen.

8.7 p.m.

Mr. Doug Hoyle: I hope that the hon. Member for Cornwall, North (Mr. Pardoe) will not mind my saying that there was no surprise in his speech. At least the hon. Gentleman has always been honest with the House in telling us that he believes in a federal Europe. He also said that the debate was not really about economic affairs but had a political nature, and I think that that is right.
However, I could not follow the hon. Gentleman's explanation when he condemned Labour Members for standing up for British nationalism while being quite prepared to see the Germans and the French standing up for theirs. That lacks logic. Why should it be wrong for us to stand up for it, and yet be all right for the Germans and the French to do just that? That proposition is very strange. The real nationalism is coming from those with the strong currencies, from the Germans in particular. It is an obvious result of the present situation in which we find ourselves in relation to the EEC.
I waited to hear the Opposition Front Bench spokesman, the right hon. and learned Member for Surrey, East (Sir G. Howe), say something constructive. I agree with the hon. Member for Moray and Nairn (Mrs. Ewing) that we were disappointed, because we waited in vain. The right hon. and learned Gentleman made a very muddled speech. It was confused and left us wondering where the Opposition would go and what they would say on these matters. We still wonder what lead will be given. We know that there are many pro-Europeans on the Con-

servative Benches, but their Front Bench gave no clear lead.
I am sorry to say that, though he stated a series of conditions, none of which will be met, my right hon. Friend the Chancellor of the Exchequer, was not clear as to what would be the sticking point. We do not know where the Government will say Enough is enough. Because we are not getting that, we shall not come in." We must ask"What is in it for this country?"It seems to me that everybody else in Europe asks that question, and it is time we stood up to be counted on such matters.
One of our difficulties is that we are not getting the background papers on which the Government are forming a judgment. I am very suspicious about this. I heard my right hon. Friend the Chancellor of the Exchequer say that he had destroyed the Treasury model. I hope that he will dismantle it, because we shall never be able to believe it about anything else that he says to us. I wonder whether he did that because the model showed that it would be an absolute disaster if we went into the scheme.
I see that the chairman of the Expenditure Committee's General Sub-Committee is present. I was very pleased that Terry Ward put assumptions through the Cambridge model, and I think that we should look at what that came up with because, on the best assumptions, it still showed that there would be a loss of growth by 1981 and a loss of 125,000 jobs. On the worst assumptions, of course, there would be a lack of growth of 8.4 per cent. and more than one million fewer jobs.
The Government are always telling us that we have to go not only for a reduction in inflation but for growth and for a reduction in unemployment. But that does not stand up to the figures which would have been revealed if we had had the benefit of the conclusions reached by using the Treasury model. In my view, that is why the Chancellor of the Exchequer was forced to be very critical of those assumptions.
As my hon. Friend the Member for Southampton, Test (Mr. Gould) said, it is no use our talking about the basket system as against the grid system. The Germans have rejected that. It is not a runner. Nor is it any use our talking about the transfer of resources. That


again has been rejected by the Germans. What is in this system for the Germans is quite clear. They do not want to see the mark continue to rise in value. They want to keep their exports competitive. They are on a very good thing, especially in terms of their exports to this country. That is why we have a bigger deficit with West Germany than with any other country, and I am sure that we shall not put that right if we go into the EMS.
It is all very well to talk here about the grid system as against the basket system. But what we are really talking about is the loss of jobs and the future of our people, especially the future of the regions. I think that we ought to get back to what a system of this kind really means to this country as a whole and for the people whom we on this side of the House represent.
When we begin to examine the system from that standpoint, we can see that there is nothing in it for us. That is a view which ought to be given due weight by any Socialist Government. That is the sort of policy that we should follow, and we should pay no regard to all this talk that it might be right or it might be wrong that this economist is in favour and that that economist is against. What really matters is whether it will lead to a reduction in our unemployment figures.
If we begin to test this proposition on that basis, there is no doubt that it will not lead to a reduction in unemployment. It will make the Government's so-called policies more difficult to achieve. I believe that we should have none of it.
If it is to be the grid system and if there is to be no transfer of resources, where will the Government call a halt? I agree with my right hon. Friend the Member for Blackburn (Mrs. Castle): we shall be told that we cannot go in—that is quite clear—but that we want to be associated with it and it may be that we shall join at some future date. However, there is a lot of danger in following that path.
It is all very well for the Chancellor of the Exchequer to say that we are not free agents. We know that only too well. We lost a lot of our freedom when we went into the Comomn Market. Why, then, should we give up some of the few

remaining economic weapons that we have?
I have not heard anyone say what benefits this country will get. I have been waiting in vain to hear. We hear the same old platitudes that we heard when we discussed the Common Market and we were taken in by the right hon. Member for Sidcup (Mr. Heath) without a chance to do anything about it. Then, at the time of the referendum, we were told that we could not come out but that there was no doubt that our partners would look after us. The real trouble is that they look after themselves and their interests.
This system will be dominated by the German mark. I do not think that the French will be able to stay in it. They will find it very difficult. It is all very well for a country to wear a virility symbol on its chest, but I do not think that that will be enough. I know that the French see in it some advantage for the discredited agricultural policy. They hope that if they stop exchange rates from fluctuating too much the CAP will become a little more respectable. I do not say that it will ever become credible again. However, the French will have a very heavy price to pay.
Whatever the French do, that is no reason why we should commit economic suicide by making our task of reinvesting in British industry, relating our economy, making ourselves more competitive and getting down our inflation rate that much more difficult. However, that is the choice facing us, and I hope that we shall hear from the Government what is to be our sticking point and what benefits we shall get if we go into the system.
Europe must not again take us for a nation of masochists. We must not make our difficulties even greater. I think that we have to say that we cannot go into the system. I can never see any time in the future when it will be possible for us to join if we continue to stand up for British interests.

8.17 p.m.

Mr. Nicholas Ridley: I shall come to much of the ground covered by the hon. Member for Nelson and Colne (Mr. Hoyle) in what I have to say, so he will forgive


me if I make no specific reference to his comments other than to say that perhaps the most interesting piece of evidence received by the General Sub-Committee which studied this matter came in the concluding paragraph of what Professor Laidler told us. He said that those who were in favour of the Common Market should be against the EMS because it was bound to fail and that would discredit the Market, whereas those who opposed our European membership should be in favour of the EMS because that would help their cause.
That advice has been followed by no hon. Member who has spoken so far—

Mr. John Moore: My hon. Friend must be patient.

Mr. Ridley: I look forward to hearing my hon. Friend's comments. However, it is interesting that so far hon. Members have declared their views about the EMS in terms almost identical to the views that they would have declared when we were debating the Common Market in the first place.
I must confess that the evidence given to the General Sub-Committee had an effect upon me. I started off opposed to British membership of the EMS. However, as I listened and questioned, I found that I was being converted. I was finally converted to the belief that there were pretty strong and fundamental reasons why we should be members of it from 1st January. I am not going to labour the point, but it would be wrong to fail to admit that there are many large economic difficulties about the scheme as far as we know it and as far as it is negotiated. The right hon. Member for Down, South (Mr. Powell) pin-pointed some of them.
I myself have always been an opponent of fixed exchange rates—always, I suppose, till Bretton Woods do come to Bremen. I do not believe that the scheme is one of fixed exchange rates. The ease with which the parity can be moved is remarkable. The skill will be that Governments and central banks will have to move their parities before the speculative pressures come upon them forcing them later so to do. It is probably wrong to look upon this as a new system of formal

fixed parities. Indeed, whether or not we defend them, whether or not they are fixed or floating, is a question of political judgment under any regime. It is up to the skill of the authorities so to move a currency, whether by intervention or parity change, as to avoid the speculative difficulties.
Another problem, I freely admit, is that it is in no sense different from the regime that we have had hitherto whereby the large quantities of unwanted dollars —what one might call the slosh fund that is sloshing around the world—have forced the mark up and the dollar down. That would have been identical if the EMS had been in force, as evidence to our Sub-Committee showed. The real reason that the mark has gone up is that it was basically under-valued. This relates to the earlier point I made about currency parities.
The real complaint of the Germans that the EMS will help them to keep down their currency value is unfounded, because the currency value was already predetermined to go up by the economic policies that they had previously pursued. All that they did was to fail to put it up, to acknowledge the fact, when the speculative attack on the dollar began.
There will be the problem of the transfer of resources. It is a pity that this has got mixed up too much in this debate. Of course, we have an unfair net contribution. That is something that can be negotiated in or out of the EMS. It is an interesting sideline thought that the Germans, I believe, will have to inflate considerably more and we will have to inflate less if convergence is to be achieved. We talk a lot about how to get money for ourselves as some sort of compensation for the fact that we will have to inflate less. It is rather a non sequitur. I do not know what resources we may transfer to Germany in order that she may inflate more. Could I suggest that Mr. Hugh Scanlon and Mr. Jack Jones, now that they have retired, are resources that could be transferred to Germany in order to achieve that objective?
The idea that Britain getting money from Europe will in some way affect our economic policies and our economic performance is rubbish. In no way will paying money to the British economy affect the rate at which our economy grows or


our inflation behaves, apart from its direct inflationary effect. The idea, I understand, is that these transfers of money into our economy will allow investment to take place. Perhaps these transfers are going to the National Enterprise Board, the Welsh Development Agency or the Scottish Development Agency, and these good bodies will invest the money so successfully that we shall catch up with Germany's growth rate. Anyone who believes that had better be, and stay, on the other side of the House. The most unpleasant aspect of this whole debate has been the way that the three poor men of Europe, ourselves, Ireland and Italy, have said"Yes, we may join the EMS, but how much are you going to give us?"This sort of mendicant position that they have taken up is utterly revolting and they should be ashamed of themselves.
There has been a sort of zoological parade in relation to this matter. I do not intend to talk about snakes in baskets and crawling pegs up grids—the dog in the manger has now been produced by the Chancellor—but I want to have my own animal, the horse and the cart. The real subject of this debate is: are we putting the cart before the horse in attempting to achieve some stability in European monetary affairs, even in European political affairs, by first working on the exchange rate and not on the convergence of economic policies?
In truth, there are two carts. There is the cart that we are discussing today and there is the second cart called the ECU, when the currency will be a European currency with a fund to support it. Obviously, it is only at that stage that real progress is made towards economic and monetary union, although the cart that we are now discussing must be seen as the first step in that direction. It is obviously more desirable that we should achieve convergence before we seek to affect the exchange rate.
If it were politically practical to say that there will be no more national budget in any of the nine countries, that there will be a common budget and a common monetary policy, as my right hon. Friend the Member for Chipping Barnet (Mr. Maudling) rightly said, that would be a way of achieving this objective. But I do not believe that that is practical or possible, so the question is, is it sensible

and right for the Europeans to start off by saying,"We shall apply this external discipline of exchange rates relationship"—I will not call it more than that—" and then expect you to conform by converging your economic policies."?
I recognise all the difficulties, particularly those that the right hon. Member for Down, South mentioned, about achieving economic convergence and achieving any particular parity even with the best will in the world, but as I said to him, there is no requirement to stick to it: one can move it.
The moment that my mind on this subject changed was when the Chancellor, in all his glacial majesty, persuaded me. I have observed the Chancellor over the years from the day when, in the Budget of 1973, he urged Lord Barber to spend much more money on big food subsidies and big industrial subsidies, which would of course have greatly increased the money supply by 1973–74 if it had been adopted. The right hon. Gentleman has come from that period of gross ignorance and stupidity—I am praising him—to a situation now in which he could put in his evidence to the Sub-Committee the paramount importance of economic convergence if we are to achieve common policies and common currencies in Europe.
I believe that the Chancellor's understanding of what we need—his converging of fiscal and monetary policies—is the breakthrough that we need to join the EMS. I am certain that my hon. Friends have understood this for many years. That the Chancellor himself should understand it is indeed a great breakthrough. This is what makes me believe that the rather vague discipline of the EMS will have the effect of making Chancellors strive to adopt common policies.
Hon. Members, particularly the hon. Member for Moray and Nairn (Mrs. Ewing), have argued about whether it is a good thing to be in a big area which has a common currency. The hon. Lady's separatist desires almost made her suggest that she would like to see Scotland with its own currency, determining its own rate of employment, its own affairs and its own rate of inflation by how it managed that currency. But the hon. Lady did not go as far as to suggest that.
The right hon. Member for Down, South, who represents another of the small parts of the United Kingdom—

Mr. Powell: The hon. Member represents Cirencester and Tewkesbury. I represent a large part of the United Kingdom. I represent Down, South.

Mr. Ridley: I shall not be diverted from my argument. That was what yesterday was all about. The right hon. Member did not advocate a separate curcency for Ulster. He said that it suited the people of Ulster infinitely better that they should accept the disciplines and advantages of sharing the United Kingdom currency. There is no enthusiasm anywhere in the House for small currency units, even though we now have the opportunity to opt out of them.
The other parallel is Eire. I am convinced that Eire will enter the EMS whether or not we do. The real reason is that Eire would prefer to be within the bigger currency unit—the Common Market—than with the smaller currency unit which will be Britain if we stay out.
The advantages seem to be great for belonging to a large currency unit. In America all the problems involved in disparities of income, the regions and the transfer of resources have been solved. There is no reason why we should not solve those problems in Europe.
The journey made by the horse and cart goes in my direction. I agree that there are economic difficulties and that we are putting the cart before the horse. But somehow this is progress in the direction in which we must go, for reasons of our security as a nation and our ultimate prosperity.
The divide between those who are in favour and those who are against was best exemplified by the right hon. Member for Blackburn (Mrs. Castle). She seemed to see it all as a plot. She seemed to prefer import controls, money and exchange controls, the whole paraphernalia of Socialism, protected from the outside world by a barrage of cotton wool and corrugated iron. It is that which ultimately should convince the House that we should join the EMS.
What convinces me in these matters is what is advocated by those who oppose the proposition. I am happy to rest on

the fact that I shall be in permanent disagreement with the extreme Left of the Labour Party. That is a jolly good reason for joining the EMS.

8.34 p.m.

Mr. Jim Craigen: The last remark of the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) might be significant, but I shall not follow him in his conversion to the EMS.
The Chancellor of the Exchequer said this afternoon that without growth the United Kingdom would not enter the system because the significant question is whether joining the EMS will result in an increased living standard in the United Kingdom and improved employment prospects. I am sceptical about that. We risk a re-run of that old movie, the 1975 referendum campaign.
In approaching this problem we have to consider, on the one hand, those who are so enthusiastic about Europe that they regard the EMS as a ready means of recharging the European batteries, and, on the other hand, those who are still intent on seeing the collapse of the EEC and all its institutions. The plain fact is that the Government must negotiate from the strongest possible position, because EMS does not simply involve economic or political matters. I believe that this whole debate has an important psychological factor, and Britain should not be pulling its punches.
We seem to have reached the stage where the elimination of tariffs is no longer sufficient to promote growth, and we have to regard the stability of currencies within the Community as an essential factor in stimulating growth.
The hon. Member for Cirencester and Tewkesbury never agreed with regional policy anyway over the years. We in the Clydeside area remember him well as a Minister.
Our Ministers have to negotiate strongly over the transfer of resources, particularly for a reformed CAP and strengthened regional and social policies. The right hon. Member for Down, South (Mr. Powell) was right when he spoke about the difficulty of achieving convergence over the years even within the United Kingdom. Since before the last war regional policy has been all about trying to iron out some of the disparities within


the United Kingdom. Labour Governments have exerted greater will and push to achieve successful regional policies than was ever shown by the Conservatives.
Yet in spite of 40 years of effort to improve regional policies, there are still major disparities of wealth and economic performance between the different parts of the United Kingdom. The better-off areas have been noticeably reluctant to shed some of their prosperity to the less prosperous parts.
Most of the debate has centred on the convergence of inflation rates. I am no economist, but I imagine that the divergence of productivity rates among the nine EEC members should also be borne in mind.
Our consistent policy since the war has been to try to maximise exports, and lately we have seen some improvement in our export performance. Nevertheless, many of our industries, particularly our traditional industries, are coming under strong pressure from the Far East and from East and West Europe in terms of more competitive prices and high import penetration.
I suggest that one of the problems our negotiators will have to keep in mind is the likelihood that if we show unwillingness to negotiate over EMS there could be an increasing flow of capital from this country, with many of our companies seeing better prospects for their capital overseas.
There is also a danger, I fear, that a strong degree of anti-German feeling could develop within Britain. Germany obviously regards a stable currency as being especially important since it has a sizeable export market both within and without the Community. It seems inevitable that for the foreseeable future Germany will be the lead ship in the European convoy of nations. It is possible that France, for its own purposes will be willing to hitch its policies to the German ship.
The name of the game is exports and imports. In a sense, the United Kingdom is engaged in a third war over trade. It is an inter-Community war. It is one in which, without one shot being fired, our industries could well be at risk. Unlike the last war, the ammunition is being kept in the counting houses of Europe. Decisions within the Treasuries of the member

countries of the Community may have devastating effects on the industrial, social and economic fabric of our nation.
I suspect that at the end of the day the EMS proposals will prove unworkable. However, we must go into the negotiations exercising the strongest possible tactics and not feeling any sense of inferiority.
It is not a matter of whether we are good or bad Europeans. All member countries are concerned about their self-interest. The United Kingdom has an important interest in ensuring that before any changes take place in the currency arrangements there is a considerable and decisive transfer of resources and a realignment of the contributions in the budget of the Community.

8.43 p.m.

Mr. Maurice Macmillan: I must apologise to the House for an unavoidable and unexpected commitment that kept me away from the debate for about an hour.
I have found it a slightly depressing debate, for two reasons. First, a number of speakers—there have been some notable exceptions—have used rather complicated arguments to try to conceal the reality of the present but, in my view, unnecessary weakness of the United Kingdom economy. They have used those arguments to hide the fact that all wounds that we may suffer are self-inflicted and the simple truth that whatever happens over EMS we as a nation must be able to support ourselves.
Some of the speeches made from the Government Benches have implied that we can achieve a higher rate of growth without inflation only if we have the ability to protect ourselves against competition and only if we can manage to keep our old industries going, regardless of the fact that there may be no demand for their products. It is suggested that the problem is not our lack of productivity, but something that the rest of the world is doing unfairly which prevents us from achieving the same standards as other countries without doing as much work as they are willing to undertake.
The second reason for considering it a slightly depressing debate is that there seems to be a failure to understand the manner in which the European Economic Community operates as a political body


and so realise that we must, if we are to have any real influence, be willing to accept EMS in principle and do what is necessary to be done from inside to remove the economic objections that were dealt with by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley).
The capacity of any British Government to influence the course of policies within the Community depends on a high degree of commitment to Europe in general and in particular to those policies in general terms. That is why I am arguing in favour of joining the system now, despite all its difficulties and despite its obvious shortcomings. This is not just an economic argument. It is also a political one, and a political argument of some considerable importance. If we are really committed to Europe, we must join this system. If we are not, we should say so and try and stand on our own feet, outside EEC.
There is a second political point here. In joining the EMS we can show our willingness to face realities at home and abroad. We have had references to the system being dominated by the German deutschemark. Why should it be? What reason is there for the Germans to be dominant rather than the British? There is none. There is only the failure of will and effort on the part of the United Kingdom.
The third political expression we must make, in addition to showing our commitment to Europe and our willingness to face realities, is to express our view of our own future. Are we to show confidence in the face of the world and before our partners in Europe? Are we to operate as the powerful and successful economy we could be; or are we to live down to the expectations which some of the French have expressed: to the effect that they would rather not have us too closely committed, rather as if we were the sort of poor relation who is welcome to lunch from time to time but not really wanted as a long-term guest or a member of the household? I do not believe that we dare make such an admission, and that is another reason why I say we should join now.
The Chancellor made a point of saying that we could not have an entirely

independent economy. He was right, and no one would argue against that. But then he went on to say that he would prefer to wait to see whether the development of the EMS was likely to assist growth. I felt he rather glossed over the implications of that point, because what it seemed to me to mean was that Her Majesty's Government would prefer to wait and see whether this country would benefit from the efforts of others without having to make commensurate efforts ourselves.
Do we really have to face the fact that we shall always be uncompetitive? I do not think it is necessary for us to do that. Yet one of the main arguments put forward against joining the system is that we must wait until that system has been altered so that it favours us, however uncompetitive we remain. We tried that one before, and we found the development of Europe going much less in our interests than it would have done had we taken a seat at the negotiating table earlier.
Other countries are prepared to accept the undoubted risks, though many of them are fundamentally weaker than the United Kingdom should be with the backing of North Sea oil. It is our fault if their present position is stronger than ours. If we dare not, even in our potentially strong position, try to join in, we can give up all hope of being able to protect British interests in other ways; for example by changing the common agricultural policy and in all the other matters that we wish to argue. We can fight our cause from inside. Fighting it from outside is beginning to look to Europeans as uncommonly like trying to sabotage the Community altogether.
The Chancellor of the Exchequer also referred to the turbulent world monetary situation. In the light of that, could we be much worse off in the system than we are likely to be in any case? We would have at the worst a siege economy, in which we would be trying to protect ourselves in vain against those who are more effective and who have a stronger will and a greater capacity to deal with change than we have yet shown. At best we could look forward to a slow slide to egalitarian poverty, improved from time to time by short-term measures, but each of them lasting for a shorter period and


each time adding more to the underlying difficulties of our economic structure.
If this goes on we can sadly look forward to being associate members of the EMS, and perhaps associate members of the EEC, associate members of NATO, and beginning as a country to look at the political and economic life of the world as if it were a spectator sport rather than as a game in which we play a leading part.
Of course, there are bound to be risks. If we had never taken risks as a country we would have been in a very sorry state far earlier than now. We shall have to face some of those risks whatever we do. The Chancellor of the Exchequer referred to the problems imposed by Germany as a country of refuge for currencies owing to the weakness of the dollar. Those problems will not go away because we do not join the EMS. He referred to the need to wait until we had a compatible economic performance. If we cannot get a compatible economic performance anyway, in the EMS or out of it, we shall sink down lower and lower and fail to achieve the growth, the output, the increased production and productivity, and create the real wealth that we all seek.
There is another risk. It is that the system could break down for internal reasons or be overtaken by world events leading to a major monetary collapse. Then the world would try to repair it. This is where I part company with the right hon. Member for Down, South (Mr. Powell) in his impeccable economic analysis. I just do not think that it will happen like that for political reasons. The European Community will act as an entity, perhaps moving towards economic and monetary union without us. It will be the Community, together with the United States of America and Japan, which will start to seek what the Chancellor of the Exchequer called global monetary order, with the United Kingdom tagging along behind, like a little boy who is not quite big enough to play with the bigger children.
It will be sad if we allow this to happen, because we are in a position to take a lead and try to guide the system in the way that we would like it to go, not only for our own benefit but for that of Europe and the rest of the world. For many years Britain benefited from the

old sterling area. One of our objectives should be to seek to build an equivalent on the basis of the EEC, extending perhaps beyond it in due course, as the sterling area extended beyond the bounds of the Commonwealth. The EMS could be the first step. But there can be no hope of reaching that sort of integral strength without the United Kingdom. If we try to join later, we shall find that it has developed, as did the CAP, in a way that makes life harder, rather than easier, for us.
We face another, an even greater, danger, namely, that London will gradually cease to be the world financial centre it still is. British banks are already greatly weakened compared with those in the United States and Europe. If this were to happen our invisible exports could be adversely affected.
The right hon. Member for Down, South said, rightly, that there is a price to be paid for being a nation. However, in a world dominated by super Powers and in which Japan, Taiwan and other Far East countries are becoming competitive with us, not on the basis of lower wages, but on the basis of greater efficiency, our joining the EMS at the beginning is not too great a price to pay for building a Europe that can stand in that sort of company and enabling us to hold our place within that Europe.
I hope that my right hon. and learned Friend the Member for Hexham (Mr. Rippon). who is to wind up for the Opposition, will give a firm acceptance in principle of the proposal to join the EMS so as to enable future British Governments to be effective in framing the detailed policies in such a way that their effects are those that we want. Then we can begin to take action on our own initiative, rather than always delaying so long that we can only react to the initiatives of others.

8.57 p.m.

Mr. Michael English: The EMS seems to have become a symbol. I do not disparage the importance of symbols in politics because there have been some great symbols in the past, but, if we look at the reality of the proposed EMS, the first charge against it is that it is not likely to work.
My colleague on the General Sub-Committee of the Expenditure Committee,


the hon. Member for Cirencester and Tewkesbury (Mr. Ridley), quoted from Professor Laidler's evidence that a sensible pro-European would not be in favour of the proposed EMS. One of the chairmen of the clearing banks, who is also deputy chairman of the London clearing bankers, told the Sub-Committee that the suggested EMS is an experiment which may fail. One of the most obvious reasons for that is that it will not be backed by sufficient resources. It is to be backed by 25 billion units of account, which sounds a lot until one realises that there is much more money than that moving around the world ready to press against any fixed exchange rate or quasi-fixed exchange rate that seems to be slightly out of line to a speculative eye.
No one knows the amount of that money because it can be in a place for investment purposes one moment and moved for speculative purposes the next if a crisis arises. A figure commonly suggested and suggested to us when we were in Brussels, for example, was 600 billion dollars, which is a great deal more than 25 billion units of account.
There is not a tremendous difference between a heavily-managed floating rate and a lightly-managed fixed rate—a quasi-fixed rate where the parities can be easily changed. This seems to have been what the right hon. and learned Member for Surrey, East (Sir G. Howe) hoped that we would be going into. I do not know what he thought the EMS was. He said he wanted us to be in an EMS provided that the parities were readily and easily changed. He said that it would be acceptable if it was well designed, with the implication that it should be designed in that way.
The Bremen statement pointed out that the system should be"at least as strict as the snake ". Although parities have been changed in the snake, the phrase"at least as strict"presumably implies that parities should not be changed too readily. The proposal is that they should be changed by mutual consent, which obviously is a little less easy than my right hon. Friend the Chancellor of the Exchequer alone deciding to change a parity, if we had a fixed rate at the moment.
The right hon. and learned Gentleman also said that the scheme should be

flexible. There are already small portions of it that are beginning to appear. If we examine the draft
 Proposal for a Council Regulation changing the value of the unit of account used by the European Monetary Co-operation Fund",
we see that article 1 of that document says that, with effect from whatever date the scheme begins,
 the Fund's operations shall be expressed in a unit of account known as the ECU, which is defined as the sum of the following amounts of the currencies of the Member States of the European Communities.
It then sets out precisely"0·828 German marks, 0·0885 pounds sterling, 1·15 French francs, 109 Italian lire"and so on. It is interesting to note that when I asked the Library of this House what that meant, I was told:
 The currencies listed in Article 1 of R/2790/1/78 are the same as those currently in use for the EUA. They are based on the share of the individual countries in the total EEC GDP plus the share of that country in intra-EEC trade plus that country's quota in the short-term monetary support fund. The weights for each country determined in that way are converted into elements of national currencies to give a value for the EUA equivalent to one SDR on the date in 1974 when the EUA first came into operation. They have remained constant since then.
It is no great wonder that things remain constant when we see that article 2 of the present proposal says:
The Council, acting unanimously on a proposal from the Commission after consulting the Monetary Committee and the Board of Governors of the Fund, shall determine the conditions under which the composition of the ECU may be changed.
The same sort of provision applied to the EUA, and it has never been changed since 1974. Yet it is supposed to be based on the share of a country in intra EEC trade, on the share of a country in total EEC gross domestic product and so forth. These things undoubtedly change.
I hope that when Ministers next go to the European Council or the Council of Ministers they will say that if there is to be a unit is must be based on, say, a share of trade determined objectively which changes as that share of trade changes, or a share of gross domestic product determined objectively which changes as that share of gross domestic product changes, but certainly not something that is based on a rigid structure laid down in a regulation which is so


difficult to change that it never gets changed, while everything else changes around it. That is an impossible concept. That is exactly the type of thing that has caused the existence of all the troubles surrounding the green pound. If one does not define the thing properly, if one lays down these things, rigidly, sooner or later other circumstances will change, the surrounding environment will change, and the result will be a nonsense —as is the present result.
I do not need to go into the technical defects of the present proposal. The hon. Member for Cornwall, North (Mr. Pardoe), on behalf of the Liberal Party, said that the report of the Select Committee was gloomy. We arrived at no declared conclusion but the hon. Gentleman called us gloomy simply because we quoted from the evidence we had received. No economist at all gave us evidence saying that we should go into the EMS immediately.
There is a school of economic thought, commonly called the monetarist one—although Gordon Pepper, for example, prefers to call himself a financial economist rather than a monetarist—which says that one should act in such a way as to bring inflation down in one's economy, bring the money supply down, and in two to five years one might be in a condition to go into an EMS of the sort envisaged.
The amazing thing about the evidence we received was that the Gordon Peppers of this world, Burns and Budd, Blackaby of the National Institute, and Terry Ward of Cambridge, all agreed. They do not agree always. They quite commonly differ. But on this particular issue they were unanimous. One clearing banker, Lord Armstrong, has declared the scheme to be worthless. The other three clearing bank chairmen declared that they were very keen to go in but did not think that it should start on 1st January. Their reason was quite different. It was because there was a dollar storm.
It is certainly true, as the Chancellor of Exchequer has said, that, in discussion, nobody except himself seems to have mentioned the relationship of this scheme to the dollar. That, of course, was what Helmut Schmidt's argument was all about.
The German politicians—I shall come to their economists in a moment—thought that here was a very good way of avoiding the pressure to revalue the deutschemark that they were suffering from, because when people sell dollars they do not buy Dutch guilder or Danish kroner; they buy marks amongst the currencies of the snake. The result was the revaluation of the German mark, but the result before that was spending a month's money to defend an indefensible rate.
We know of this proposal, because it has been repeatedly said and it does not need to be said again. It is a proposal for quasi-fixed rates and not a proposal for permanently fixed rates. There was once such a proposal, the Werner proposal, agreed by the Council of Ministers of the Six in 1971 and forgotten ever since. That proposal is not the one before us. The proposal is for quasi-fixed rates, changeable by mutual consent. It is the"mutual consent"bit that makes the difficulty. I do not think that there is a world where individual speculators will ever be beaten by a committee of nine people. Instinctively, if it were my money, I would be on the side of the speculator if I knew that on the other side was a man with very little money who had to get the agreement of a committee of nine people.
The EMS is a symbol. It is no good saying that just because it will not work we should not go in. It is no good saying that just because it will not work we should not be there. All the Germans who know anything about economics think that it should not exist. All five German economic institutes say that it will not work. Dr. Emminger of the Bundesbank says it will not work, and says it all over Europe. He does not like it for a reason quite different from that of my hon. Friends behind me. They do not want an EMS because they think that economic convergence—or whatever one cares to call it—will lead to greater deflation in this country. Dr. Emminger and others in Germany believe that it will lead to greater inflation over there.
Therefore, they are quite opposite reasons, but obviously both of them assume that convergence would relate to an economic mean. I do not know why that should be so, because there is no reason why one should not express some political will in this matter and decide whether


Europe, as a whole, should inflate or deflate. There is no precise reason why everybody should assume that convergence means convergence about an economic mean somewhere between Britain and Germany or somewhere between Italy and Germany. That is what everyone assumes. People probably assume that for the good reason that the institutions of the Community are so slow as to be ineffective in making political decisions. I think that we worry wrongly about these matters.
We in this country assume that there will be greater deflation. That may be so. I notice that in the Financial Times our adviser, Mr. Ward of Cambridge, was greatly criticised in a leading article by someone who did not know what he was talking about. For example, the article stated:
 Our experience of floating up to now is of wild changes in competitiveness.
My right hon. Friend the Chancellor would say that our exchange rate had moved within 2 per cent. over the last two years—much less than the Italians are wanting in the proposed new snake. If that represents wild changes in competitiveness, I suggest that the leader writer in the Financial Times has not looked up the figures.
He was fair enough to point out that the Committee asked the Treasury for its background papers. The Committee then, when that request was refused, asked the Treasury to prepare a paper for it. When that was refused, it asked for permission to use the Treasury model, the Treasury computer, for its economists' assumptions. What the leader writer does not say is that those economists were not only Terry Ward but economists of the London Business School, the National Institute and Gordon Pepper—a variety of people who had agreed on a set of assumptions.
The Financial Times leader writer states that
 the officials refused to be drawn into what is in essence a speculative parlour game, although they had provided such figures for the Cabinet.
I am not sure what this leader was supposed to say. I think that it was supposed to say that the Treasury should not be drawn into a speculative parlour game, except when giving advice to the Cabinet. It may be that that is what happens. I

do not know whether as a Committee we were supposed to do nothing about it. Fortunately, we had at our disposal a computer in Cambridge, so we produced a set of figures showing what could happen if there were excessive deflation in the British economy.
I entirely agree with my right hon. Friend the Chancellor of the Exchequer that all forecasts are by their very nature wrong, because they have a degree of error, and that one should not rely on any forecast too much. That is a sensible attitude. But for a supposedly reputable newspaper to single out one person's forecast, especially when in this instance several people were consulted, is very foolish.
There will not be a speedy economic convergence. Therefore, it is likely that this EMS will not survive. For example, we have talked about a transfer of resources. That might perhaps lead to economic convergence. MacDougall, in his report, estimated that the amount normally transferred within a State from one region to another was the equivalent of 40 per cent. of public expenditure. In Europe that would be about 40 billion units of account—something over £27 billion. That is not likely to happen, as one of my hon. Friends said earlier.
This symbol has become something other than an economic matter. We are told that it is a symbol of political union that may lead to economic and monetary union and that economic and monetary union may lead to a political union. Different people will take different attitudes. I was on the antiMarketeers campaign committee before the referendum. Some of my hon. Friends say that this is what they feared and do not want and that is why they are against EMS, but the hon. Member for Cornwall, North was not sticking strictly to the truth when he said that everyone who was against EMS was an antiMarketeer. If he thinks that clearing bank chairmen and economists such as Gordon Pepper and Burns and Budd are anti-Marketeers, he should talk to them at some time. Certainly some people take the attitude that we should not go into the EMS because it is in some way associated with the possibility of economic and monetary union and political union in the EEC but there are other attitudes.
There is another attitude, just the opposite, which says that one should ignore totally the possibility that it may not work, that it is ill-constructed and that we should go in solely because of exactly the same possible progression from the EMS to an EMU to a political union. The hon. Member for Cirencester and Tewkesbury, in spite of hearing all the evidence which members of the Select Committee heard, described this as"a step into the future"by the EEC. The hon. Gentleman's words are quite right; it may be a step into the future. But what troubles me about the EEC is that it is always walking backwards into the future.
Years ago, in the 13 united states as they were at the time, when two of them started to put up customs barriers, someone said"Let us sit down, argue this matter sensibly and create a federal constitutional structure ". The result was not bad. It has had its troubles, but it has produced a State which produces 40 per cent. of the entire gross national product, or whatever one cares to call it, of the earth. That is not a bad result from what they did some two centuries ago. At least they had the right idea. At least they sat down and said"One needs a political structure ".
What is proposed here is an EMS which is not yet a currency, which will eventually have attached to it a fund which may back a currency, which may become a reserve asset in years to come, which is controlled by a committee of nine people who must always agree on something and which otherwise has no political direction whatever.
I happen to be among those who think that monetary policy in the past has been rather ignored in comparison with fiscal policy. I think that attitude of mine is generally known. But I still think that either fiscal policy or monetary policy is only a tool of economic management. Economic management is something which should be done by modern Governments, and is done by modern Governments, in accordance with the political direction in which they wish their economies to go. They do not always get it right. They quite often get it wrong. But at least they use these tools in an attempt to secure lower inflation, lower unemployment or some objective that we all consider desirable. But it is only a

tool, and to create a tool, such as a European monetary system, without having a political organisation to decide how that tool should properly be used, is, in my view, walking backwards into the future and really putting the cart before the horse.
The hon. Member for Cirencester and Tewkesbury said that we should go into the EMS because it will lead us to a federal union. It would have been much better for Europe as a whole if we had done like the Americans and sat down and decided whether there was scope for us to agree on a federal structure for the EEC, because then the rest follows. If there is no scope for agreement, we would not have wasted so much time and so many arguments about it in the past, and no doubt in the future as well as at present. But we ought to do this the right way round. In my view, since we are in the EEC, we ought to say to people"Stop tinkering around ".
As my hon. Friend the Member for Nelson and Colne (Mr. Hoyle) said, when we are talking about an economic tool such as EMS, we are really talking about people's jobs, their prices and the currencies which people use. We ought to stop talking about an economic tool and decide what we wish to use it for and who will wield it.

9.19 p.m.

Sir Brandon Rhys Williams: We have had a number of distinguished academic contributions to the debate. I felt that some of the speakers had learned all about currency out of books and had never in their lives had to negotiate forward cover during a political crisis, or even handled a simple export or import contract across foreign exchange rates. Had many hon. Members who have spoken today been speaking to a business audience, I believe that they would have had a chilly reception, because they have approached the subject in an academic way and not recognised the very real problems of business in the situation in which we find ourselves.
I believe that if we were to stay out of the European monetary system we would be putting our business people at an even greater disadvantage than they are in already in the present chaotic currency system. Our competitors in


Ireland, Germany and elsewhere would have a relatively stable currency background while we would be out in some kind of limbo of our own making.
In considering British policy on this matter there are some simple questions to ask. Do we prefer co-operation or anarchy in international relations? Do we stand to gain more from unity or from disunity in economic affairs? Do we sincerely want sound money? If we are not committed to sound money, but prefer to retain the power to tinker with the value of the pound, obviously the attempt which the European Community is making to stabilise values and to defeat inflation is something in which we should have no part. Business and investment interests in this country urgently demand that the Government should respond favourably and should not stand aside nervously for a few months to see what happens. They should commit themselves wholeheartedly from the start.
The Chancellor of the Exchequer opened well this afternoon when he made it abundantly plain that what we are being asked to join is not a single currency system. We are not being asked to step at a single stride into economic and monetary union with a single currency operating permanently over the whole area. What the Community is trying to develop is a multi-currency system operating on civilised lines. At present we have a multi-currency system running on increasingly wild and uncivilised lines.
If we look at the actual rates of variation in the values of the currencies—taking the strongest and the weakest in the Community—we are only contemplating a variation in the effective purchasing power of about½ per cent. a month. That is not such a devastating rate of variation in purchasing power that we could not live with it for a time. What we cannot continue to live with is a currency market where we frequently have variations of 2 per cent. or 3 per cent. a week, and variations, even in leading currencies, such as the dollar and the Swiss franc, of as much as 5 per cent. in a single day.
It must be possible to devise an internationally-managed float which gives business a better background of certainty and security than that. It is highly

commendable that our friends in France and Germany are determined to bring that about.
There have been successes to serve as examples in the past. We have only to look back to the 1930s and remember the currency crises of those years with the dislocation, disruption of trade, the unemployment, the collapse of investment and indeed the political consequences which followed. Then we saw emerging at the end of the war the Bretton Woods agreement.
The time is not ripe to try to reconstruct a world currency system. If we insist on waiting for that time before we are prepared to make any move at all, we shall have to wait a long time—too long. The European Community is an area in which we could make a regional Bretton Woods with some reasonable hope of success. The Bretton Woods agreement set up the International Monetary Fund. In the European Community we have the counterpart in the form of the European Fund for Monetary Cooperation—the FECOM.
The Bretton Woods agreement set up the World Bank, and in Europe we have the working institution of the European Investment Bank. In America they agreed that it was necessary to have an IDA to handle soft loans and deal with special situations. In the EEC we have tried to develop something along the same lines—not too successfully—in our regional policy.
In the end, however, it was the generosity of the United States in launching the Marshall Plan which made a success of the Bretton Woods experiment. The fact has not been lost on our Continental friends, but I do not think that they have approached it in the right way. I regret that agreement has been reached already on the setting up of the 25 billion ECU fund because I am afraid that that will be devoted far too much to short-term intervention in the currency markets with the risk that much of it will end up quite quickly in Hong Kong, New York or somewhere like that.
What we need is very large sums for investment that will go into real, longterm projects of the sort now being neglected because the currency disunion is reducing confidence, so that in the public and private sectors business dare not take


long-term risks. So I am not entirely happy about the way in which our new economic and monetary system is developing, and I am certainly not happy about the way in which the British negotiations have lately been tending.
There is another example that we can look back to and learn from—the setting up of the European Payments Union in the 1950s. That was an experiment that ran for a number of years, I think to the great benefit of all the members that belonged. But neither the Bretton Woods system nor the European Payments Union was capable of standing up to the sort of movements of capital with which we are having to contend now.
The huge new fund that is being set up, largely on the initiative of Germany, which is making the most generous contribution to it, should be used to deal with the currency instability arising from the movements of capital, but it should be particularly devoted to subsidising, assisting or encouraging long-term investment projects.
With that fund behind it, the European monetary system will be a success, at any rate for a time, and probably for a long time in markets such as Copenhagen, Milan, even Amsterdam, and perhaps even Paris, where the capital movements are not so large, even at a time of crisis, that they cannot be carried on a fund of that size. But in London, with the history of sterling and its very wide use, its spread in so many hands all over the world, I do not think that any fund is likely to be large enough to prevent speculative movements occasionally upsetting the rate.
Therefore, we must realise that London is in a specal situation. I am sure that we can argue this with our partners in the Community and that they will comprehend that, whereas it is possible for the smaller currencies to join the monetary system in the confidence that the fund will see them through any foreseeable crisis, in London speculating against sterling will have to continue to be carried on the rate and the system will have to make some allowance for that fact if sterling is to remain in it.
May we now look at one or two particular questions which have been very important in the negotiations? Should the new system be based on a single

national currency, which is the thinking behind the parity grid concept, or should we seek to develop an alternative currency, perhaps an artificial currency, which we can use instead of any individual national currency of the Community? For a long time the alternative currency that we all used with great satisfaction was the dollar, but there are, unfortunately, many reasons why we cannot continue to base our economic relations on that.
We have therefore seen the invention of the ECU on a formula which is probably reasonably satisfactory. The ECU has the advantage that it will never be as strong as the strongest currency in the system and never as weak as the weakest, so it has a sort of quality of stability which the individual paper currencies may not have. But at the end of the day it is only a paper currency, a sort of paper contraption.
The arguments between the parity grid camp and the ECU camp are rather artificial in the context of a system where parity changes will be allowed and probably will happen quite frequently. Therefore, I agree with the French that in the end it does not matter whether we start on the parity grid basis or with the alternative currency. We can go into all that later.
I hope that ultimately Western Europe —or, indeed, the whole Western world—will be able to develop some reference point for international transactions which will transcend all the paper currencies and prove a measure of value and a store of value which everybody can depend upon. Of course, we are all searching for the restoration of the gold standard, and ultimately that will happen. However, in my view, gold itself will not be the centre of it. I do not know what the reference point will be—possibly the marginal cost of a kilowatt-hour or something like that.
Another aspect of the negotiations is the development of central institutions which are able to serve in the longer run, an interim monetary arrangement of the sort that is envisaged. Unfortunately, this is an issue which has been largely neglected in the negotiations. No one has got down to considering the powers, the nature and the manning of the central institutions of the Community which will be necessary if the system is to run smoothly. The


FECOM itself, which is to be used as the basis when we begin on 1st January, still so far as I know, has no staff and no premises of its own. Certainly that is another neglected issue.
As to commitments by national Governments, it is plain that there will have to be close understandings about exchange rate changes, interest rate changes, the control of monetary supply, budgetary policy and many other aspects of the management of the individual currencies which take their places in the multi-currency system which we hope will be run in future on civilised lines. But I have not seen or heard of any significant agreements being reached on these longer-term commitments by the national Governments about trade and investment policy and the rest of it. So that is another issue that has been neglected in the negotiations.
Nor do I believe that anyone has really considered the long-term recycling of funds which may accumulate in any one of the major financial centres. Obviously all our eyes are directed at Frankfurt at present. With the passage of years, it might be some other financial centre which will prove a magnet for capital. We have to find a way of bringing those funds back again into productive investment all over the Community. I have not seen any serious attention being given to that important subject.
If, therefore, we are to start on 1st January, we have to admit that we shall be starting with a large number of subjects still to discuss. However, in my view that is not a reason for holding back. The Chancellor of the Exchequer brought out the fact today that if we look back at the performance of the pound over the last year or so, we can see that it had fluctuated within a very narrow band. So perhaps the Bank of England has not lost all its cunning. If in the last year we could have belonged to a system such as this without embarrassment, we ought to be able to do so in the coming year as well. I cannot see why the Government are so nervous.
The Chancellor of the Exchequer also made it clear—and I regret that he was so trenchant—that the British Government intended to maintain their stand on the sticking point of symmetry which has

half wrecked the negotiations. This is an unhappy intrusion of an academic attitude into negotiations which ought to be very realistic. It is understandable that the right hon. Gentleman wants the Germans—or whoever has the strong currency of the day—to respond in order to assist the country which has the disadvantage of being estimated by the markets to have a weak currency. But there are certain matters which have to be recognised in the course of a negotiation. When one's negotiating partner is determined not to give way and will not do so, it is futile to press and press on that same subject. The British Government are losing their reputation, if they ever had any, for realism and subtlety by going on and on asking the Germans to give way on this problem of symmetry on which they will not give way.
However, in the remaining days there is still plenty of room for horse trading. If the Germans will not accept any suggestion which appears to commit them to a higher rate of inflation, we should ask them for something else and that something else might be greatly to Britain's advantage.
After discussions with senior officials in a number of Continental centres in the past few weeks, I believe that the Germans will not accept a system in any circumstances which they consider would commit them to a higher rate of inflation, but that they would accept a commitment to a higher rate of investment. They would agree to a real recycling of funds for investment through the Community's institutions or in other ways. In effect, we would get what we are asking for not at once but later.
This brings back into view the dimension to which I was trying to point in my earlier remarks. There is far too much short-term calculation. We are not getting on with the business of long-term planning and long-term investment. That is where the emphasis in Britain ought to be. We should get long-term planning back into view.
I recommend therefore that the Chancellor should press for much greater use of the European Investment Bank. I am sure that he would find that he was pressing on an open door if he showed a disposition towards projects that can be seen to be profitable or necessary in the longer run. As an example, I have mentioned


before the Channel crossing, which would fit in with the Commission's transport plan and would obviously be of great benefit to this country.
Another example is the Severn barrage, which clearly should be part of our energy policy. With the news from the Middle East becoming more alarming every week, surely we should be getting the Community to focus its attention on new sources of energy. If we were to press for concessions in that kind of area, we would get them. I implore the Government not to be obstinate and wooden and so to bring the negotiations to a standstill in these last remaining days.
If we join, we shall find it much easier to gain acceptance of our position on other matters of importance such as reform of the CAP. It is futile to imagine that we shall reform the CAP between now and next Tuesday. It is better to drop that subject, which is highly political and charged with political background for each of the countries concerned, and take it up again when the excitement of the present negotiations has died down. There are also the fishery negotiations and the whole business of our contribution to the budget and similar matters. We shall be able to negotiate a satisfactory relationship on those matters in due course if we are seen to be serious members of the Community. If we are not —if we are regarded as contemptible and unhelpful hangers-on, or just as mendicants—our voice will be heard less and less. I beg the Government not to let these negotiations fail in the next few days unless they have already decided, and taken the decision in principle, that Britain is to leave the Community sooner or later, perhaps sooner rather than later. To let these negotiations fail would have a tremendous political significance which they must not neglect.
What are the conclusions for 5th December? The Italians, finding it difficult to join the monetary system, have chosen to belong within wider bands. The Irish seem to have managed to negotiate themselves very large subsidies. I do not think that either of those courses is the precise approach for the British negotiators.
I suggest that we should join on the understanding that we do not actually

have to disclose what commitments we have made. Why should London give undertakings to the world's speculators as to the point at which they will be able to pick up their winnings? It is far better for us to convince the rest of the Community that we mean to co-operate and to act within the spirit of what is proposed but not, at this stage, to give any public undertakings as to the precise point at which the speculators can confidently expect intervention. If we say that we shall join but not disclose openly to the market precisely the terms on which we have joined, that would be understood because of London's special position.
The Germans have been wrong to contemplate a system which excludes Britain. but it is not necessary that we should feel ourselves to be outsiders. We are founder members of the FECOM, which is the institution being used to develop the new financial system.
Lately I have found evidence of growing anti-British feeling in Germany, though not in France. I implore the Government not to antagonise our remaining friends by insisting on the impossible or turning their backs on this initiative.

9.39 p.m.

Mr. John Roper: The hon. Member for Kensington (Sir B. Rhys Williams) has pursued this matter for many years, both here and in the European Parliament, and some of the things that he has said should be studied with care. Certainly the position of London and the strain which might fall upon the pound should be noted by my colleagues on the Treasury Bench. However, I am a little surprised about his views on the question of symmetry. Even taking up the point of the hon. Member for Cornwall, North (Mr. Pardoe) about the comparison between Bretton Woods and the EMS, the complaint about Bretton Woods was that one could not get the scarce currency clause to work and that that was why one could not get it to operate as a system. Surely, in the same way, some pressure on the surplus currencies as well as the deficit currencies must be an intrinsic part of any successful and viable system.
Three or four points have come through the debate repeatedly. First, there is a general view, in spite of what the hon.


Member for Kensington said, that an exchange rate mechanism by itself is not enough. Therefore, my right hon. Friends, both in the Bremen communique and subsequently, have been right to say that the current measures will be essential to strengthen the economies of the less strong members of the Community if such a scheme is to be durable and effective.
I do not want to take up the points made by my hon. Friend the Member for Nottingham, West (Mr. English) about the MacDougall report, but it is interesting that Sir Donald MacDougall and his study group on the role of public finance in European economic integration suggested that if about 21 per cent. of the gross national product of the Community were available to the Community budget, it would be able to move significantly towards reducing interregional inequalities within the Community.
The second theme which has come out of the debate is that we are talking not about a zone of fixed parities but about a zone of currency stability. That is an important distinction. Nobody wants to be King Canute. We all realise that that is folly and that in any case it would be impossible.
The Chancellor himself put it as clearly as anyone in an article last month in which he said:
 There is no doubt that many of the currency fluctuations in recent years have not reflected underlying economic differences between the countries concerned… the real question is whether we can find a system which gets rid of these erratic speculative movements in the value of currencies, while allowing currencies to change their values when economic circumstances justify it.
That of course is easier said than done. It is difficult to decide what is a speculative fluctuation and what a significant economic change. That is the impossible task that we are setting the managers of the EMS and the Council of Finance Ministers if an EMS is set up. But it is worth attempting, difficult though it be.
Thirdly, as is traditional in these debates, the subject of our sovereignty was raised by the right hon. Member for Down, South (Mr. Powell). But surely what we are saying is that we are prepared to exchange some of our independence for influence on the economic

policies of other countries which are important to our country and our people. Whether that is desirable or not depends on one's judgment. I believe that such a pooling of sovereignty on the right terms would benefit this country.
This debate has shown that there are a number of different reasons for supporting British membership of, or association with, an EMS. Apparently, it is not to be a straight re-run of what my hon. Friend the Member for Glasgow, Mary-hill (Mr. Craigen) called the film of the 1973 and 1975 debates of our membership of the EEC. Obviously, there are other important factors.
First, there is the general international situation and particularly the international monetary situation. Second, there is the judgment which we come to make about the effects upon our own economy of fixed versus floating rates. Some would say that this is only yet another EEC question. I shall make some comments on the pattern of negotiation at the end of my speech.
I share the view that was expressed by the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) that one might be somewhat sceptical about the viability and durability of the EMS but none the less believe that it is worthwhile experimenting with it. I believe that there will be a number of experiments during the 1970s and 1980s until we find a satisfactory basis for European monetary co-operation. That we are not convinced or certain that it will succeed is not in itself an argument for not attempting the experiment.
I turn to the wider international implications. These are of considerable importance in a period when international monetary stability, rather than European monetary stability is perhaps the more serious threat to our economy.
The concept of a zone of monetary stability in Europe is important, but it must be judged, as is suggested by condition 7 in the White Paper and to which reference is made in paragraph 23, in terms of how far it can contribute, among other things, to wider world monetary stability. That is of particular interest to the United Kingdom. A lower proportion of our trade is with the EEC than is the case with the other eight members


of the Community. Therefore, we are particularly concerned to see how this will work towards an eventual world monetary system.
I agree with the hon. Member for Kensington that we cannot expect to go straight to a zone or world monetary system. But we must consider whether this is an effective stepping stone towards such a system. It is important for Britain to be associated from the inside, either formally or informally, with the ongoing discussions about a European monetary system so that we can play an effective role in the discussions which I believe will then take place between the EMS, the dollar and the yen in order to find a satisfactory basis for world monetary stability.
Certainly, if we are outside the EMS, sterling could find itself under considerable pressure, not merely from the other European currencies but from the dollar and the yen. I am convinced that we will have more influence and be more likely to achieve a world monetary system if we are inside the EMS than we should have if we were outside.
Much has been said already about the adverse effects on the United Kingdom economy. The Chairman of the General Sub-Committee of the Expenditure Committee discussed the analysis which appears as an appendix to his report by Mr. Ward of Cambridge. However, the Cambridge model, like the Treasury model, is based upon certain arbitrary assumptions. One of the difficulties that we face when we look at the annex of that paper is that we must test two possible European monetary systems against a situation in which the pound floats perfectly and smoothly downwards in order to maintain at all times the competitiveness of British industry.
That is a fairly optimistic assumption about the effectiveness of a floating pound. The experience of the last six years of floating is that it is difficult to achieve such a smooth float. Indeed, the evidence of the past six years has not in any way proved the case for floating. It has not necessarily proved the case for fixed rates either.
Clearly, for those who believe that markets work more perfectly than the arbitrary decisions of Government, there is an argument for floating on. But

experience suggests that we are subject to more arbitrary and irrational forces when we float than when we are subject to a regime of fixed but adjustable rates.
I believe that the case for fixed but adjustable rates is made strongly by the experience of recent years. Of course, arguments are also adduced about the adverse effects on employment and output to the monetary measures which are necessary to bring down our inflation rate.
I believe that the Government have accepted as important national economic policy the fact that we should try to reduce our rate of inflation to a point reasonably within that of our principal industrial competition. To do that within EMS would be only an extension of what is already an agreed Government policy.
If we are to compete successfully in the world our economy must certainly be competitive. There is no soft option to competitiveness by continuous devaluation. It may be that the assurance of stability that membership of the EMS would give us would in the medium term be directly beneficial to employment and economic activity. I am convinced that it is more likely to be so than a policy which relates to currency depreciation and cheap labour, which appears to be the alternative that faces us.
I turn now to certain of the European aspects of the negotiation. I believe that my right hon. Friends were, and continue to be, right to press for the eight characteristics of a satisfactory European monetary system as laid down in the White Paper. We need, if we are to have a durable and effective monetary system, one that is more than just a system of monetary intervention, more than just a supersnake. It must be a framework for the co-ordination of the economic policies of the members, including the aim to achieve higher levels of economic activity and growth in each of the member States.
I hope that when the negotiations continue over the weekend and into next week they will be successful and that the points that my right hon. Friend the Chancellor raised will be met so that we are able to join. If we are not able to secure to our satifaction all the points spelled out by my right hon. Friend—and it is widely recognised throughout the Community that the United Kingdom has special problems—I hope that we shall make sure of three things.
I hope that we do not prevent the monetary system from going forward. On that point I was glad of the reassurances given by my right hon. Friend. Second, I hope that we shall maintain a framework for continued British participation in the discussions on the development of the EMS, because it is an evolving system. It will not be agreed next Tuesday and frozen for all time. I hope that, even if we are unable to associate ourselves with it at the beginning, we shall be able to continue to play an active part in the development of and discussions about the system. Third, I hope that my right hon. Friends will be able to announce that they will follow such economic and monetary policies as will facilitate our full membership at such time, I hope in the near future, as the British economy and the European monetary system are ready for such membership.
This is an important step forward for the European Community. We should not underestimate its importance to our fellow members. Of course, there are risks in our going in. But there are equal, or possibly greater, risks in our staying out. I hope that my right hon. Friend the Prime Minister will continue to press next week for satisfactory solutions which I am convinced can be found and will then be in the interests of both the Community and this country.

9.53 p.m.

Mr. John Moore: The hon. Member for Farnworth (Mr. Roper) made a point that had already been mentioned by other hon. Members in the last six hours of debate. I should be interested and curious to discuss with those hon. Members, at their leisure, the incredibly fast method of decision making that they seem to postulate that this body of nine different nations seems to have been able to arrive at to prejudge, predate and beat every speculator in town. I should be fascinated to know what new mechanism has been arrived at, because it is crucial to the comments that they have been making.
In the six hours of debate so far I have heard no reference to what I think is the excellent work of the General Sub-Committee of the Expenditure Committee. I have missed only one speech. I hope

that the comment has not already been made. I consider that the House needs to thank the Sub-Committee for providing an opportunity for many views to be put in print. It enabled many papers to be published irrespective of whether we agreed with them all. It presented us with a major opportunity. I have read all the papers presented to the Sub-Committee. That suggests that some of us, at least, are masochists.
I take up a matter that might have clouded the excellent work that was undertaken by the Sub-Committee. It was not necessary for it to be overcritical of the Government and the Treasury for failing to provide evidence. To that extent, one would be presupposing that negotiations of the sort that must continue around such an issue by any Government at any time should be carried out in public. Clearly, that would be wrong. That would negate the good work done by the Sub-Committee.
I am disturbed by the nature of the debate in that it has become excessively simplistic. I am sorry that my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) is not present. I can assure him that I am one of the extremely pro-Europeans who is very much anti our entry into the EMS. It is important to correct the pro-Europe—anti-Europe simplistic stance that has been taken for much of the debate. It is contrary to sound economic discussion, which is what we should all be undertaking.
Since I was at university in the 1950s I have been a supporter of what I describe as true European unity. There is a complication because for nearly 20 years I have been in detailed, practical involvement—I am what some might call an investment banker—in the job of seeking to advise corporations and governmental institutions from all parts of the world on how to handle their funds by recognising the divergent natures of many different nations' economic patterns. In that capacity, one is forced to live with the practical world. I agree with some of my hon. Friends that the practicalities have not often been discussed in the debate when our attention has been drawn to currency.
I am conscious of the reality of the current movement towards unity in


Europe as opposed to the dream that many of us had. I prefer always to deal with reality as a pragmatic investment banker as well as a politician seeking to improve the nature of my country. I agnostically examine EMS with my pragmatic aims as a backcloth.
There are two prime problems. The first lies in the extreme confusion to be found in most people's minds when they discuss currencies. Most of the published comments to be found in the published evidence of the Sub-Committee and in the press have centred on the fixed-versus floating-exchange-rate debate rather than on EMS.
We must be objective and make clear our own views on the fixed-versus-floating exchange-rate debate. I am close to the views of that excellent commentator, Samuel Brittan. I quote from one of the many articles that we have seen under his name in the past few months. Mr. Brittan wrote:
 All that can be claimed for floating exchange rates is that they balance the supply and demand for foreign currencies. If they are left to do their work there is no need for balance of payments policies, cap-in-hand official borrowing, export drives, import quotas, exchange control and all the other paraphernalia of modern mercantilism. The benefit is thus limited, but extremely important.
I think that Mr. Brittan is being excessively modest in his description of the benefits.
With the preceding comments as a backcloth, I make three observations on the confusion that is bound to cloud the debate when we turn to the prime obsession, namely, the nature of the currency.
There is a highly complex patriotic attitude towards currencies. A currency becomes a classic national virility symbol. That creates inhibitions for this sort of debate. There are major inhibitions with a fixed exchange rate system. Any decline in the value of the currency is national humiliation. We are stuck with this basic patriotic, as opposed to realistic, attitude towards currencies. A second confusion is the sense of a fear of change of attitude towards currencies. That is best expressed in the rather unfortunate views of the British Chamber of Commerce. Those views are unfortunate in the sense that it has not argued about the EMS; it has argued about the legitimate conservative attitude of business men towards—
It being Ten o'clock, the motion for the Adjournment of the House lapsed. without Question put.

Ordered,

That at this day's Sitting the Motion in the name of the Prime Minister for the adjournment of the House may be proceeded with, though opposed, until any hour.—[Mr Snape.]

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Snape.]

Mr. Moore: I was saying that there is an excessively simplistic view taken by the British Chamber of Commerce document that we have received, which essentially was arguing that a fixed rate of exchange is a known fact and therefore, per se, is good. That is the essential fear of change attitude towards currency. the need not to have an additional variable in the processes of decision making. There is the confusion which surrounds the attitude to currencies, which is concerned with the view that currencies are a method of discipline. This fits both schools—those who want fixed currencies and assume that they require external discipline to do the domestic deeds that they are somehow afraid to do themselves —and the floating currency school, of which I am one, which thinks that the visibility of a floating currency, whether it is strong or weak, gives a clear indication of the nature of what is going on within the domestic economy. These are alternative aspects of discipline, and both are crucial.
To the extent that these confusions surround currency, they draw us away from the basic point that has been made by one or two speakers in the debate, and that is the failure to see currencies as reflections, or as symptoms, of a nation's strength or weakness. Therefore, the efforts to control currencies, as opposed to the causes of those weaknesses, are bound to fail in the long run.
The second prime obsession surrounds all our myths as to what EMS might do as opposed to the reality. The first myth is one which has been discussed at length tonight, and that is the assumption that fixed currencies equal stability. It is understandable that all of us would seek stable conditions, and in many minds such conditions are associated with growth, progress and prosperity, though these are not necessarily the same. That


is understandable, but the myth that has been developing in the debate is that exchange rate stability is a higher priority for these things than stability of other variables, such as interest rates or domestic monetary policy.
I make three points on that. First, the temporary removal of one unknown variable, such as exchange rates, must create greater pressure for action in the remaining variable which may, in the short term, be worse for business. As a business man, I might find that, were I working a plant to capacity, I would be more interested in low interest rates, so that I could build and develop additional plant and creat job opportunities, than I would be in a decline or an increase in the rate of exchange.
Secondly, the short-term appearance of stability in the exchange rate could be creating worse instability through more violent change later.
The third point, which the right hon. Member for Down, South (Mr. Powell) made much better than I could, is that the absence of fluctuating sterling in the market place, or any currency so fluctuating, might obscure the fundamental disparities that were developing within the economy and this would mean the creation of less perfect market conditions which would again, make for greater instability. Inevitably, more violent changes would occur.
The second myth is that EMS has been seen by most speakers who are very much in favour of it as having the basic objective shared by all the major partners, namely, European monetary union. This is classically wrong. A realistic and crucial examination of it shows very differing objectives, and differing objectives produce a very different result.
It is perfectly legitimate for the Germans, in fear of the dollar weakness, and not just in fear of the associated deutschemark strength but also in fear of the problems associated with becoming per se a reserve currency, to seek a defensive posture. We have underestimated the attitude of the French in their legitimate desire to confirm Franco-German hegemony in Europe. We have underestimated their desire to demolish the dominance of the dollar as a world currency. We have underestimated the

desire of the French to put in aspic, as it were, the current position of the CAP.
As for ourselves, there is a combination of contrary motives surrounding the debate about Britain's entry. It is said that it will solve our regional problems, that it will solve the budgetary disallocations of the European Economic Community, that it will solve the problem of the CAP, and that it will allow us to impose on ourselves the disciplines that we are not willing to impose. Clearly, all these very divergent aims quite legitimately mean that the reality that has appeared is a limited currency parity relationship system, or an enlarged snake —or again, to develop the comment of the right hon. Member for Down, South, a teutonic boa constrictor.
The third myth—a more modest but equally fallacious one—that has been allowed to develop, unfortunately, from the Opposition Benches as well as the Labour Benches, is the assumption that resource transfers can themselves solve the economic ills. It is obvious that they can act as a palliative and that they can mitigate, but they cannot cure. To the extent that this belief has been built into the debate, it makes people think that it is absolutely crucial not to miss the boat, the gravy train, or whatever be the idiot word that is associated with it.
The fourth myth is that the EMS snake will create in itself currency stability and another centre of strength for the world alongside the dollar. To me, as a person who has spent most of his business life in this area, it shows a deep confusion as to what happens practically in currency markets.
We have heard many comments tonight about money sloshing around the system. There are two basic kinds of non-governmental money today—corporate money and essentially OPEC money. These have legitimate needs and legitimate aims in terms of defensive protection. I suggest to the House from my experience that, post the snake, if the snake were to develop with or without the United Kingdom, there would be initially a move by such floating money into the dollar. That would not be for fundamental reasons related to potential dollar strength—because the dollar has not resolved its essential problems—but because initially the upside


movement in currencies such as the deutschemark would have been removed. The upside movement would be gone, and corporations and people advising institutions such as the Saudi Arabian monetary authority would be making quite legitimate actuarial calculations with a temporary static market as to the relative inflation rates, the relative interest rates, and other variable factors associated with world currency. The dollar would then, in a short-term sense, be attractive, so that there would be a temporary suspension or a temporary cessation of excessive movements within the snake group, which would give the appearance of short-term stability.
But longer term, on re-analysis, there would be a more fundamental move and greater instability in the very currencies themselves, because the gap between the currency and the economy would become wider and more obvious and the potential for profit would be clear because there would be a protection on the downside by courtesy of the reserves of the European snake Community members. There would still be changes in the currencies but the changes would be more aggravated at the point of time of change rather than more gradual, and they would be based so much more on the analysis of political rationale than on economic movement, and this again creates a greater aggravation of movement.
The fifth myth is one of the most disturbing to have appeared in the debate. It is that this nation will, for some extraordinary reason, respond to external discipline to correct our domestic ills, even if the EMS does not have the power to coerce us into such a response. The most I can say about that argument is that if there were a response, at best the blame for all the worst actions taken in the domestic economy would be laid at the door of the EEC and we would be talking about acquiring a German hair shirt. That would be another death knell to a united Europe.
The sixth myth is that EMS will advance the cause of European unity and that to be against entry to the EMS is to be anti-European. I totally deplore the appallingly facile nature of, for example, the paper presented to the General Sub-Committee by Commissioner Tugendhat. It was dirigiste in its views and essentially argued analytically only on the basis that

support for fixed currencies was, per se, support for a united Europe and that it was wrong not to make that basic contribution.
On the contrary, I believe that supporting a fallacious system which I believe will fail could hurt, and maybe finally destroy, the current drive to European unity. It would delay the resolution of two of the most crucial negatives to unity. The first is, classically, the common agricultural policy. Anyone watching the drive to European unity over the past 10 or 15 years must be aware of the limited energy and resources of European leadership to be committed to one attainment. The EMS would delay the resolution of the problems surrounding the CAP and the French, not being unaware of the move towards change, are conscious of the need to deflect the attention of those Europeans into another area entirely. The EMS would delay the resolution of the CAP, which has gone a long way to destroy the nature of the true European unity which many of us have sought.
As we heard from the Chancellor of the Exchequer, the EMS would also delay the crucial movement that the United Kingdom should have been taking to commit itself to its basic commitments under the Treaty in terms of movement towards a free exchange control system. It will stop the free movement that should have developed between Britain and the rest of the Common Market since 1975 and will prevent or delay the resolution of our problems.
Secondly, the EMS will promote Franco-German hegemony, which is not the same as European unity. Finally, if the snake intervention is successful—this is the most crucial economic point—and we stick into the fixed snake relationship, it will embed the divergent patterns of current European national economic development and, therefore, delay the economic convergence that might occur and, thus, true European unity.
I apologise for having delayed the House, but I have given considerable thought to this subject. We cannot simply be negative. Speaking as one who seeks a united Europe in a true sense, I must address myself to how we can achieve true economic and monetary union. I have said that I do not think that it can be achieved by stealth or by forced convergence. That could add to


the CAP and become the final destroyer of European unity.
As my right hon. Friend the Member for Chipping Barnet (Mr. Maudling) said, we must work towards true economic convergence first. We can create true economic unity only if we work correctly. It can be helped if we improve our exchange control and by free floating, but it might be too long before we obtain

the political consensus plus the economic unity that could be the basis for European monetary union. I believe, therefore, that we should be pursuing the creation of a true Euro-currency, with real reserves, real backing and a real rate of return. That would be the route to ultimate true European unity and we could support it. However, it is a route to the destruction of the path we have approached so far.

10.15 p.m.

Mr. Nigel Spearing: Everybody who heard the speech of the hon. Member for Croydon, Central (Mr. Moore) would regard it as a contribution of great importance. I am only sorry that my right hon. Friend the Chancellor of the Duchy of Lancaster was not present to hear it. Indeed, I am sorry that my right hon. Friend has not been present for most of this debate, to which he will be replying later.
The hon. Gentleman has carried out a service to the House and to the country —and, indeed, to the EEC if his speech is read widely before next week's conference. As a practical banker—and there are, of course, practical professions other than banking—he told the House how these proposals would affect him. Therefore, the Eurospeak PR in favour of the EMS is superficial. It is trying to push a political idea and to clothe it in technical language in such a way that it sounds appealing and practical. The hon. Gentleman effectively disposed of that PR exercise tonight.
The hon. Gentleman made a point that is of fundamental importance. He said that people differ in their objectives and he emphasised that it was difficult in negotiation or in working any scheme to come to a real understanding. In other words, if that understanding is not reached, a system will fall apart. I suggest to the hon. Gentleman that in other aspects, not only in relation to EMS, that is all too true. It is true of so much of the EEC, including its common agricultural policy.
The hon. Gentleman gave a list of other matters, apart from currency and exchange stability, that would be involved. I suggest to manufacturers, and even to people in the newspaper world and other places where there are problems, that social stability, the coherence of a nation and the expectations of business and of Government are equally important in the long run to those involved in the economic life of a nation. If through adherence to the EEC we are likely to disrupt or exacerbate social instability in any one State, not only shall we damage the business and currency of that State but we may inflict long-term damage on society itself.
The hon. Gentleman's speech gave the answer to the impressive speech of the hon. Member for Cornwall, North (Mr. Pardoe). The hon. Gentleman said much about Bretton Woods with which I agree. However, almost in the twinkling of an eye he took the good things out of Bretton Woods and transferred them to the EMS. But there are two great differences between those systems, as the hon. Gentleman would recognise if he were here. The first is that EMS is not the broad currency sweep of the world and does not include some of the major world currencies. Secondly, it has behind it a whole political set-up which the IMF and Bretton Woods never had and never intended to have.
This is the point at which I begin the remarks I was about to make before I heard the magnificent contribution of the hon. Member for Croydon, Central. The hon. Gentleman and I are different in our views about coming to what he called the true Europe. My view of true European unity is co-operation, and not coercion from a political central source. If we examine all aspects of the EEC, it is probable that almost every area has the same kind of flaws and is bound in the long run to fail. What we must consider is the damage that will arrive before it fails. I suggest that the CAP can be analysed in that way, and probably practical people in every walk of life could carry out the same exercise.
Let us examine some of the procedural aspects. It was suggested earlier that we should discuss in this debate, as well as the Adjournment at large, document R/2790/1/78, which is a proposal for a Council regulation establishing a European monetary system. Hon. Gentlemen will notice that that is not included on the Order Paper in the rubric. I understand that the document will not, therefore, be ticked off the list of documents which the Scrutiny Committee has waiting for us in this House. I therefore suspect that we may see it again, maybe after the summit and maybe before the final Council of Finance Ministers on 18th December.
I believe that this is an important matter, because if we were trying to deal with that document tonight we should not be able to do it justice. It may


become, if there is agreement at the summit, a legislative document of great significance. It would have been impossible for the House to look at it carefully tonight and to do it justice.
I wish to draw the attention of hon. Members to some of the contents of the document. Not only is it a draft document dealing with the European monetary system but it changes the value of the unit of account used by the European Monetary Co-operation Fund. That is the vehicle that may well be used if there is an agreement. The document sets out, in article 1, what the initial parities are to be and the proposal for the fund says that the European Monetary Co-operation Fund, set up by Council regulation EEC No. 907/73 of 3rd April 1973, will be the operating authority.
Earlier in the debate—I hope that my right hon. Friend the Chancellor of the Duchy of Lancaster will reply to this matter in particular—it was claimed that this was not on the way to economic and monetary union—" No, nothing of the sort "; it would not necessarily lead down that way. But the regulation which was referred to in the document

Mr. Powell: The Chancellor of the Duchy of Lancaster is insulting the House by his lack of attention.

Mr. Spearing: I do not think that matters, because my right hon. Friend really has not been listening for very much of the evening. I am asking him to reply to the point which was made that this would not lead us towards EMU.

Mr. Lever: I have heard that point before in this debate. My hon. Friend must know that.

Mr. Spearing: Yes. I should ask my hon. Friend a question related to the foundation regulation of the Council, No. 907/73, on which the regulation under which EMCF will be set up is based. This was based on previous regulations which had been considered by the House. I read from the regulation itself:
 Official journal No. L89/2. Whereas the purpose of the Fund "—
that is, the ECMF—
 must be to contribute to the progressive establishment of an Economic and Monetary

Union between the Member States of the European Economic Community, which, in its final stage as regards its monetary aspects, will have the following characteristics: either the total and irreversible convertibility, at irrevocable parities, of Community currencies against each other, or the introduction of a common currency ".
In a further paragraph it states:
 Whereas the conferment of these responsibilities constitutes merely a first stage in the progressive development of the Fund; whereas it is therefore important that the Statutes of the Fund should be drawn up in such a way as to permit the scope of its activities to be gradually extended ".

Mr. Fairgrieve: Hear, hear.

Mr. Spearing: The hon. Member for Aberdeenshire, West (Mr. Fairgrieve) says"Hear, hear." He is entitled to do so. What I would suggest to the House is that, although it does not guarantee movement towards economic and monetary union, the chosen vehicle, which is not a surprise to the right hon. Member for Down, South (Mr. Powell) and myself, is the European Monetary Cooperation Fund, the statutes of which were enlarged some time ago to allow for this particular eventuality. Indeed, the House may be surprised to know that the preceding documents to that were considered in this House on 12th March 1975, at 3 a.m. and 4 a.m.
The right hon. Member for Down, South quoted—I shall repeat it—the explanatory memorandum to the documents we then had under consideration. It stated:
 That is why the Commission proposes that the Fund should henceforth be made responsible for co-ordinating the internal monetary policies of the Member States of the EEC in so far as they affect interest rates, capital movements and foreign exchange rates.
There, in 1975, in the dead of night as usual, the foundation stones for the EMCF were laid down and debated in a way by the House. My right hon. Friend the Financial Secretary was on the Front Bench at that time. I suggested that this would develop and be of great significance to our economy—I shall not repeat what I said—and my right hon. Friend did not dissent from what I said.
Unfortunately, that debate took place before the referendum. That was at the time when referendum leaflets and debates were proclaiming that this was a nonstarter and was not on. In fact, those were the words used by my right hon.


Friend the Member for Huyton (Sir H. Wilson).
We are told that we are too suspicious, that there is no plot and that this is not leading in that direction at all, yet we debated this very possibility three years ago. Therefore, the House should understand what might be regarded as a cynical stance by Labour Members.
I wish to make two further points. The first relates to the way in which this matter has been debated nationally. Clearly, there has not been the kind of debate that the subject merits in the media or within the parties. I am not sure whether this matter was debated by the Conservative Party at Brighton. An effort was made to debate the matter at Blackpool, but that failed for reasons which can be guessed. As far as I know, the matter has not been dealt with adequately by the BBC.
The matter was not properly debated at Blackpool by the Labour Party because it would have inhibited my right hon. Friends' freedom of movement. In other words, we are back to the point made by the hon. Member for Croydon, Central regarding negotiations. If we are in a negotiating position—the Government have been in a negotiating position on this matter probably for six months, and even before Copenhagen is my guess—anything which is said in the country is bound to have an effect politically on the Government's freedom of action. No one wants to be hemmed in. That is why I suggest that some of our debates have been difficult procedurally. It has been difficult for us to get anything from the Front Bench. I suspect that that was why it was difficult for the Select Committee to get information from the Treasury.
I understand the Government's position. However, I suggest that this proves that the way in which the EEC operates—by putting constraints on our normal methods of discussion and debate—is inhibiting the democratic institutions which it claims to defend. I suggest that that happens time and again. It has happened in small ways, and it has happened in a huge way on this occasion.
I hope that those who favour a movement towards a federal Europe—even the hon. Member for Croydon, Central, who wants to see some true form of

European unity—will bear that in mind. It certainly makes Labour Members even more determined, because they see the dangers. There may be economic dangers—we have the figures on trade on our side—but there are even greater dangers to our political institutions, not merely the visible ones such as Parliament.
I have suggested that there was not really any responsible debate in the press. My evidence for that is the way in which the examination of the Chancellor of the Exchequer was covered. He gave evidence to the Expenditure Sub-Committee for one and a half hours. That Select Committee is one of those new bodies on which many hon. Members have set such high hopes. I am not against them—I think that they can do useful work—but I do not think that they are the great panacea that many of my hon. Friends believe. This is an example of it, because the Chancellor of the Exchequer appeared for an hour and a half. This was covered well in The Times next day. The Sunday papers said virtually nothing. I asked them why, and they told me that it was covered in the Saturday papers. As far as I know, it was not covered in The Economist at all. I wrote and asked why and I have not yet had a reply. This is proof of the atrophy, not only in the press but also in this House. We know the difficulties of the Expenditure Sub-Committee. The Chairman told us only a few minutes ago.
What about this Green Paper? It has 10 pages. It starts off by saying that it must be read in conjunction with the memorandum which was laid before the House by the Chancellor of the Exchequer on 1st November. My copy of that memorandum was cyclostyled. I do not know how many people outside the House of Commons got it. Why could not the memorandum have been in the appendix? It would have been longer than the text.
Quite clearly the Government have had to keep things down. That was why we had a low-key speech from the Chancellor of the Exchequer in opening the debate. I hope to prove to the House that this is happening. Years ago people said that it could not happen here, but I suggest that we are not far from that point. In order to negotiate on such a serious matter as EMS, the


Government are beginning to keep things down in this House, to stop people's mouths and to stop operating the policy of open government.
At the end of his speech, the Chancellor of the Exchequer claimed that EMS was a means of recreating some sort of world currency stability. I was really shocked by that claim. My right hon. Friend had to keep things down for the reasons that I have suggested. But to claim that of an EMS is rather like repeating the claims that were made of the EEC—that it was a step on the way towards world co-operation and government. I do not believe that it is that at all. The EEC structures disagreement. It does not promote what I call international co-operation. Yet the Chancellor of the Exchequer claims that if EMS is successful it will help towards world stability.
What is the EEC doing in the world wheat market at present? It is dumping 10 million tonnes of subsidised grain on that market. There is no world wheat agreement because the EEC is messing around. The EEC is dumping dairy produce even on farmers in Australia and New Zealand, undercutting them and putting them out of business. How can an EMS, even if successful, be run by an EEC which is operating imperial policies on a world basis?

Mr. Hooley: Yes, it is destroying the sugar market.

Mr. Spearing: My hon. Friend mentions sugar, I have given other examples. If is is operating imperial policies in international affairs, what will happen to the way in which it operates its currency? It will operate it in an imperial way, just as the countries of Europe did before 1914. That is the way in which the EEC goes about its international business. It was the way in which Europe went about these matters pre-1914 that brought about the First World War. We are trying to stop the third. If Opposition Members really think that the EMS would work towards world stability, they should think again.
The trends can be stopped in only one way. We want to co-operate with our European colleagues, but co-operation means consent, and it means consent by

free will. It does not mean coercion. Time and time again Conservative Members have said"If you only give way on that, you will get something else. Be nice." But soon after that there is coercion.
The only test of free will and co-operation is the ability for us in this House to say on any matter such as EMS, agricultural co-operation or anything to do with the Third world or building up real co-operation throughout the world,"Yes, we shall buy that on behalf of the British people." That means that the House must have the last say, which in turn means that if we do it by consent we must amend the Act and amend the coercive and central activities of the EEC. If we do that, we may not only get the new Europe that the hon. Member for Croydon, Central and I both want to see but on the way to a new world.

10.36 p.m.

Mr. Peter Brooke: I join the hon. Member for Newham, South (Mr. Spearing) in congratulating my hon. Friend the Member for Croydon, Central (Mr. Moore) on a remarkable speech. I hope that the hon. Gentleman will believe I am genuine when I say that this debate, which has been very good, would not have been complete without the speech that he has just made.
Earlier in the debate my right hon. Friend the Member for Chipping Barnet (Mr. Maudling) reminded the House that it is now a quarter of a century since he first led a British delegation to the IMF I believe that the Chancellor of the Exchequer is now the doyen of the OECD Finance Ministers.
My own historic perspective is much more modest, but I have a sense of seeing another chapter of the story unfolding in that in 1961 I was the Swiss correspondent of the Financial Times and thus was present at three of the events which eventually gave rise to today's debate. The first was the initial devaluation of the deutschemark and the guilder by 5 per cent. in the spring of 1961. The second was the opening by OPEC of small offices in Geneva on the foundation of that organisation. The third was the arrival of my right hon. Friends the Members for Chipping Barnet and for Sidcup (Mr. Heath) at the offices of EFTA, also


in Geneva, to explain that the British were going to open negotiations to join the Common Market.
To the best of my knowledge—and I have been here throughout the debate—no one has yet mentioned Messina. I do not wish to dwell on it, except to say that those who today have forecast the failure of the snake mark II arouse echoes of the British basis for leaving Messina, with such sorry interim results for the CAP.

Mr. Fairgrieve: Who represented Britain at Messina?

Mr. Brooke: I am sorry to have to inform my hon. Friend that a Conservative Government conducted those negotiations.
The basis to which I referred was that all the vain British efforts to save the Brussels treaty and the European Defence Community in 1954 had convinced us that the Continentals would never agree on an economic community either.
If no one has mentioned Messina, there have been prodigal references to fixed and floating exchange rates. I can remember a decade ago listening to the right hon. Member for Down, South (Mr. Powell) make a coruscating speech to a private audience against fixed exchange rates. I enjoyed and admired his speech today as much as I enjoyed and admired his speech 10 years ago.

Mr. Powell: Both were right.

Mr. Brooke: But the right hon. Gentleman was then on the attack. He later won that battle, and since then he has had to defend floating rates, a defence in which at the theoretical level he was joined this evening by the right hon. Member for Blackburn (Mrs. Castle).
The disadvantage of the arguments relating to floating rates is that theoretically they are impeccable but at one remove at least from the practical behaviour of business men. If I may try to make the point by analogy, the theoretical economist says that all business men seek to maximise their profits, whereas the only maximisers of profits in practical business are the burglar and the prostitute. Keynes said that he could never understand how people as stupid as business men could make money, until he realised that they made it out of

each other. But Keynes nearly went broke in a foreign exchange transaction when he failed to allow for the fact that others were less clever than he was and had not seen the point as quickly as he had.
Floating rates measure what happens but not necessarily what does not happen. Pace the right hon. Member for Blackburn, the volatility of floating rates in the past five years has increased commercial uncertainty, has diminished business men's confidence and has inhibited their decisions. I still chair the private firm for which I worked before entering this House. Our business is overall a microcosm of the OECD economy, except that we do not have an operation in Japan, and the board which I chair has six different nationalities. Our global results for the past year measured in different currencies vary between a capital gain of 25 per cent. in United States dollars and a 17 per cent. loss in Swiss francs. A spread of that kind puts a tremendous strain on those who are engaged in trying to work a collaborative international policy.
We do not necessarily need an EMS to stabilise exchange rates. I congratulate the Government, after their reliance on Arab money in 1974 and 1975, on their management of the exchange rate in the past two years, though the rise to $2·10 recently was a vivid demonstration of what the Chancellor of the Exchequer was saying today about a Government's inability to control the rate against a flood.
The importance of our own exchange rate vis-à-vis the EEC is also demonstrated vividly—here to some extent I am contradicting the hon. Member for Farnworth (Mr. Roper)—when we consider our imports from the EEC as a percentage of our gross domestic product. Our imports from the EEC run at 10 per cent. of our gross domestic product, whereas for Germany they are 9·7 per cent. and for France 9·2 per cent. Given the attractiveness of our wage rates to international investors, I regard stability in exchange rates as being critical to the flow of external investment which unquestionably has been deterred by sharp exchange movements.
Against this background, we look at the European monetary system. Although I do not regard the system as mandatory


in order to achieve stabilisation, I think that stabilisation would be more likely to occur if the system were in existence, and I welcome it as much as regret the fact that the Government were seemingly outmanœuvred in the negotiations earlier in the year. Although I welcome the progress towards the system, I regret that that progress has been dominated by Germany in the way that it has.
Of course Germany is entitled to consult its own self-interest, just as the United States Government consulted their self-interest in the Bretton Woods negotiations. But, despite what my hon. Friend the Member for Kensington (Sir B. Rhys Williams) said, so far I do not detect in the German contribution the same generosity towards weaker brethren as accompanied American policy in the postwar years.

Mr. Eldon Griffiths: As regards Germany, bearing in mind my hon. Friend's deep knowledge of the subject, will he agree that one of the problems is that the Federal Government may be prepared to take a more generous line but that the German central bank takes a much tougher one?

Mr. Brooke: The discrepancy between the attitude of the German Government and the German central bank has been remarked upon widely in the debate.
Germany and Switzerland deserve admiration for the way they have continued to pile up surpluses, despite the strength of their currencies. I am speaking now simply in terms of economic performance. But these are national policies, pursued at national cost. If any country wishes to achieve international co-operation to help to protect its own national interest, that country has to be more flexible and to make more concessions than Germany has so far been or done. Once France had been persuaded, of course, it became much less necessary to persuade us. In the context of European unity, I regret that France, however fortified by its election result, should have conceded so much to Germany and in the process have made a comprehensive European solution less likely.
It is worth remembering that, if the French election result fortified the French decision, so in future, if this episode becomes a second Messina, historians may

count as the greatest cost of the British not having had a General Election this autumn the fact that the British Government were inhibited by short-term considerations from embracing the difficulties of a policy with longer-term rewards.
Where, however, I entirely endorse the Government in their longer-term perspective is that in no way does the system necessarily represent the first step towards a European monetary union—a step which I would not wish to see without the support and the approval of the British people. But, if it does not represent such a first step, it does represent a significant step towards something else which is of the same importance to the country as a whole as it is to my constituency. That is a greater freedom in the market for financial services throughout Europe.
By comparison with the progress which has been made in the trade in manufactured goods, the progress in financial services has lagged a long way behind. Since I believe strongly in the military doctrine of reinforcing success, the convergence of economic policy represented by the European monetary system can only be good for the City, and the City's contribution to the country's invisible earnings, based on great competitive skills would already be greater if more had been achieved in liberating the domestic financial markets of the Nine.
We meet almost on the eve of the Government conducting their final negotiations. I do not fully understand the concordat which was reached last Friday between the Prime Minister and the President of France whereby we shall be founder members of the system without subscribing to the exchange rate mechanism, but I congratulate him on having achieved it. The direst sequel to our being out-manœuvred in the summer would be if we were confronted with the same question as faced us at Messina.
Although I do not believe that we can afford to join the EMS on the basis of a parity grid as against the basket, just as I do not believe that France will survive in the parity grid if that is the system chosen, I was profoundly moved by the distinguished speech of my right hon. Friend the Member for Farnham (Mr. Macmillan). It is essential that we remain involved in the evolution of the system,


and I hope that the Government will take it in the spirit in which it is offered if I send them the same good wishes for the negotiations as attended the departure of the right hon. Member for Anglesey (Mr. Hughes) for Southern Africa last week.

10.48 p.m.

Mr. Frank Hooley: I was much impressed by the critical analysis of the EMS proposition by the hon. Member for Croydon, Central (Mr. Moore). I was particularly interested in his use of the word"myth"as he touched on the various misconceptions—six, I think—which he catalogued.
What strikes me most about the EMS is that it is yet another addition to European mythology. The first great myth was that this common market of 250 million customers would provide a great dynamic for the United Kingdom economy and a great impetus to British business men to modernise their businesses and build up our economy. In fact, nothing of the sort has happened, as the anti-Marketeers prophesied and contrary to all the arguments of those who were so passionately anxious to get us into Europe.
We have had the oil crisis, the commodity price explosion, the worst inflation since the war and mass unemployment. We had a balance of payments crisis in 1976. We had a plunge in sterling in 1976. Far from assisting us with these various problems, the CAP has aggravated our inflation by its dear food policy. The budget is unfair since it places on our balance of payments a strain that will grow and grow.
I am particularly sensitive about this since I have been involved in an argument about the special steel industry in Sheffield, which is being destroyed by German dumping against which we have no defences. Our lack of defences in terms of protecting industries has also aggravated our problems.
The pro-Marketeers will say that this is grossly unfair because Europe was responsible neither for the oil crisis nor for the commodity explosion. That is true. But this great common market of 250 million customers has done absolutely nothing to protect us from those disasters. There are certain aspects of the Community's structure which are to our dis-

advantage and which deprive,us from taking sufficient action to protect ourselves.
The first myth was that business men were going out to this great market with vast investment and making dynamic sales. But, apparently, those unfortunate business men, who were referred to rather disparagingly in the quotation from Keynes, do not understand or cannot cope with currency fluctuations.
The second myth is that we must have a zone of monetary stability which will be achieved by the European monetary system. It is not to be a zone of full employment or a zone of economic growth. On the contrary, the zone of monetary stability could easily drift into being a zone of economic stagnation and indefinite high unemployment.
I have not the technical capacity to follow all the arguments in detail, but I believe that the hon. Member for Croydon, Central hinted at something of that kind. He and others said that the notion of a zone of economic stagnation could be compensated for by the United Kingdom becoming the remittance man of Europe by a supplementary benefit which would be paid by Germany to the United Kingdom. That is not a particularly agreeable prospect; nor would it solve our economic problem.
What determines the relative exchange rate? I agree with the hon. Member for Croydon, Central that it is determined basically by the real economic performance of a particular country, plus, of course, natural resources when a country has them. We have oil and natural gas, which have an impact on our ability on the exchange rate. One of the reasons why Holland is able to stay with the snake is because it has enormous reserves of natural gas which boost its economy.
The strength of the yen and the deutschemark have nothing to do with monetary management or currency manipulation. They are based entirely on the enormous productive capacity and high efficiency of German and Japanese industry. The European monetary committee accepted this when it said that for the EMS to work at all there would have to be what it called"economic convergence ". In other words, it said that the strength of the real economies of the


member States would have to approximate more closely to one another or the scheme could not work.
If the real economic performance determines relative exchange rates, why have we had this problem of violent fluctuations which has vexed the Europeans? The real economy does not jerk that much from year to year, either in the United States or in this country. Why, then, were there such enormous fluctuations in sterling in 1976 and in the dollar in 1978?
It is interesting on this point to quote the Green Paper. In paragraph 5 it states:
 Currency movements have often been greater than was justified by the underlying economic situation, as with sterling and the dollar in some recent periods",
which is correct. It continues:
This has been facilitated by the great increase in the volume of mobile funds.
That is most important.
There are huge footloose capital sums which can be shunted in and out of the different currencies. It is the shunting of these enormous sums, which, I gather, could amount to about $6 billion, which causes the fluctuations. As the hon. Member for Croydon, Central pointed out, a lot of the money is oil money or money under the control of multinational companies. The hon. Member seemed to suggest that it was perfectly proper and reasonable for these companies to shunt the money around, presumably on interest rate or other calculations. But, while that might be reasonable from the point of view of financial interests, it is extremely damaging and disruptive to the individual countries and their currencies.
The curiosity in the Green Paper is that although the sentence refers to the volume of mobile funds, which are at the root of international currency difficulties, it says little more about them apart from paragraph 23, which touches on the point about international monetary co-operation beyond the confines of Europe. The Green Paper says that:
 the UK would like to see a positive approach to the relationship of the EMS to other main currencies, including the dollar, and to the international monetary system as a whole.
That is fair enough, and one could hardly quarrel with it. But the final sentence is significant:

 There has so far been little discussion of this problem.
The designers of the EMS are not interested in that problem and do not see their mechanism as leading to a genuine reform of the international monetary system. Indeed, it cannot do so, because the resources of the EMS are in no way large enough—not even the $25 billion—to cope with the footloose capital sums that are being shunted around the currency markets.
It has been suggested by some hon. Members, and it might be suggested by my hon. Friend the Chancellor of the Duchy of Lancaster, that the EMS is a stage on the way to a more rational and stable international monetary system. I contest that on political and practical grounds.
In practical terms, there is no evidence that the creation of the Common Market as a single market has in any way contributed to international co-operation in GATT on trade matters. On the contrary, it has developed three powerful groups at enmity with one another. They are the Common Market, the Americans and the dollar, and the Third world, which is attempting to get something out of the deal in the Tokyo round.
So far from the Common Market having led to greater co-operation and understanding through GATT, it has exacerbated quarrels and arguments. It has imported into the argument a much more bitter, restrictive and selfish attitude towards the Third world, particularly on matters such as the import of textiles, preferences and so on.
I believe that if the EMS came into being it would import into the argument about international monetary reform and the development of the IMF the same kind of bloc mentality. We know perfectly well that Chancellor Schmidt and President Giscard d'Estaing have nothing but contempt for Carter and detest the dollar. Part of their political aim—I do not suggest that it is necessarily their economic aim—is to build a bloc that they think will stand up to the dollar and make them independent of fluctuations and movements of the dollar. There is no intention behind the EMS scheme to move towards a genuine reform of the international monetary system.
If we want to defeat the violent fluctuations of currency—I accept entirely the


view that there has to be a process of gradual alignment, of shifting up and down without complete floating—both, as it were, on a day-to-day basis and in the long term, the alignment will be forced to take place in terms of the comparative strength of the real economies of, for example, Britain, the United States, Germany and Japan. Of course, there will be a realignment.
If we want to get rid of the violent short-term fluctuations which, I understand, part of the EMS is about, we have to act through the IMF and through the use of the special drawing rights. We must create a genuine international monetary reserve that is powerful enough to deal with the huge offshore dollar sums which are shunted around the international economy and cause currency disruption. The EMS is never likely to be powerful enough to deal with that problem. In so far as it is conceived in antagonism to the dollar, it is more likely to aggravate the problem than to provide a political solution.
As for our domestic activities, I think that the final paragraph of the Green Paper is right. Paragraph 46 states:
 The Government will vigorously pursue policies which are necessary for improving growth and reducing unemployment. The foundation for these policies must be an improvement in our industrial performance and victory in the battle against inflation. Only these can provide a lasting basis for stability of the exchange rate.
That is perfectly correct.
I offer three suggestions for the wider problems of the exchanges and the recession that is now afflicting the Western world. We shall not get ourselves out of the present level of stagnation without a massive transfer of funds from North to South. There will have to be a massive aid programme in the wealthy industrial world to assist the Third world. It will have to be something on the scale of the Marshall plan. The Americans were wise enough to realise that that was the solution in the immediate post-war period in view of the great disparity between the wreckage of Europe and the prosperity of America. Until we see a comparable move of resources from North to South, I am dubious about the present economic climate.
Secondly, commodities—oil is the obvious example—play a part in the dis-

ruption of monetary mechanisms. I am surprised that the West has not shown more enthusiasm and eagerness to move on the common fund discussions.
Thirdly and finally, if we want to deal with the problem of speculation and the shunting of great capital sums across the currencies, the only way is through the IMF and by creating genuine international currency reserves which are so large and powerful that no speculator can take them on.

Several Hon. Members rose—

Mr. Deputy Speaker (Sir Myer Galpern): I propose to call the right hon. and learned Member for Hexham (Mr. Rippon), who will be followed by the Chancellor of the Duchy of Lancaster. The debate will continue thereafter.

11.5 p.m.

Mr. Geoffrey Rippon: One of the lessons of the debate is the way in which the Government's handling of our affairs has made a rational approach to the creation of a viable and coherent monetary system more difficult. In fairness to the Government. it must be said that in part at least that is due to the Labour Party's generally negative attitude and due especially to those hon. Members who, like the hon. Member for Sheffield, Heeley (Mr. Hooley), try to turn every issue, no matter what it is, into a debate against the European Community. Perhaps I can best leave the Chancellor of the Duchy of Lancaster to reply to the hon. Member.
A lot of the matters dredged up time after time by some Labour Members, and by some of my right hon. and hon. Friends, were really settled, as the Prime Minister said the other day, three and a half years ago. As the Prime Minister told the House on 14th November:
 The necessity for Europe is a closer combination and not to split up."—[Official Report, 14th November 1978; Vol. 958, c. 205.]
The sooner some of those right hon. and hon. Gentlemen who go on bleating, trying to blame every single thing that has gone wrong upon the European Community, belt up, the better it will be for all of us.
Having said that, I agree with the views expressed by my hon. Friend the Member for Croydon, Central (Mr. Moore),


who observed that we must all avoid what he described as an excessively simplistic view of the European monetary system whereby attitudes are determined by whether one is supposed to be pro or anti-Europe. The establishment of a European monetary system is not just a matter for the nine members of the Community alone. It concerns all the nonmember countries which may become associated members of the scheme, as they have been invited to do. Not least, in the longer term it concerns the new applicants for membership of the Community—Greece, Spain and Portugal—whose interests at this stage of European history I do not believe we should neglect.
I also believe that it is a European contribution towards the world monetary reform which is essential if we are to avoid disastrous consequences. As Professor Robert Triffin said earlier this month, two devaluations of the dollar and its recent"dirty"downward float have meant
 that further procrastination in the negotiations of agreed reforms of the world's settlement and reserve system would inevitably trigger an utter collapse of the international paper dollar standard.
Whether or not we agree with Professor Triffin, that the fundamental reform required is the replacement of dollars as the major source of world reserves with gold-guaranteed deposit accounts at the IMF—or whatever solution may be accepted—one thing is certain; as the Chancellor of the Duchy of Lancaster said in the debate on trade and industry on 26th June,
 Bretton Woods went out of date, but it is miles in advance of the near-anarchy that marks the system now prevailing in the world." —[Official Report, 26th June 1978; Vol. 952, c. 1178.]
I believe that in the longer term there is no necessary contradiction between the idea of world monetary system reform and the creation of a specifically European system. They march together. My hon. Friend the Member for Kensington (Sir B. Rhys Williams) was right when he said that we might, in a sense, regard this as a regional Bretton Woods.
I rather hope that the Chancellor of the Duchy of Lancaster will tell some of his right hon. and hon. Friends what he

told the Financial Times conference on 27th February, when he said:
 Irresponsible, self-serving unilateralistic attitudes offer us only a miserable prospect of mounting mutual injury and bad feeling.
It was only shortly after that, in Copenhagen, that the European Council set itself and the Community a formidable task—nothing less than, to quote from the communiqué:
 a common strategy designed to reverse the present trend in the Community's economic and social situation, covering economic and monetary affairs, employment, energy, trade, industrial affairs and relations with the developing world.
There was there at least a general recognition of a common purpose and a common necessity, which is to get out of the current stagnation and unemployment and surmount the dangers of our present economic and monetary disorder. But no one at Copenhagen was suggesting that all the problems could be dealt with in one package. I think that my hon. Friend the Member for Croydon, Central was right when he said that even within a European monetary system one cannot deal with all the variables at once. No one would suggest that one could.
What is unfortunate—this has been mentioned by several speakers in the debate—is that the Government as a whole have been gravely at fault in the handling of the negotiations ever since, as my hon. Friend the Member for City of London and Westminster, South (Mr. Brooke) said, they were caught off balance so badly at Bremen in July, when what was originally a British intitiative in 1977 was apparently superseded by this Franco-German proposal. Indeed, it was reported that so badly taken off balance was the Prime Minister that the telex machines actually jammed under the burden of the messages passing to the Treasury and from the Treasury to disconsolate and discomfited Ministers.
Instead of wholeheartedly welcoming, as they should have done, the proposals within the Community to bring about greater stability in exchange rates and to reinforce where necessary national methods of combating speculations against national currencies, the Government in that situation have dithered. They have also confused the real issues and in the


process they have weakened our negotiating position, so that valid British criticisms of the Franco-German proposals have gone largely unheeded. The Government, because they are always having to placate the anti-European wing, give the impression at home, and therefore overseas, that the British attitude to the Community is almost entirely negative and governed by a very narrow and self-destructive definition of national interest.
It is in that sense that we have reduced unnecessarily our influence upon events. Since Bremen, if I may say so, the Government have made one blunder after another. First, they seriously underestimated the political will in the Community and its determination not to be bogged down in a morass of technicalities or to seek the solution to all the difficulties that might arise before doing anything at all.
My right hon. Friend the Member for Chipping Barnet (Mr. Maudling) quite rightly said that the European monetary system will face difficulties, just as the Bretton Woods system has done. I have no doubt about what will happen. The arguments about the merits of parity grids, baskets, dirty floats and crawling pegs will go on for years to come. We must also accept that there is no way of forecasting the sorts of difficulties which will arise even perhaps within the next 12 months.
I am delighted that the Chancellor of the Exchequer has debunked the Treasury models in the way that he has done. All the statistics are very misleading. When I was trying to negotiate the rate support grant, I said that we should never get the answer until we could have a computer of such perfection that when we asked it a question it would give the answer"First sacrifice a goat."
It is equally true, as the Chancellor of the Exchequer said, that we are not talking about a fixed exchange rate. We are talking about a zone of monetary stability. It may be that it is a fixed but adjustable parity rather than a managed float, but the real importance is that whereas within the snake there have been 19 realignments, which is not too many, as my hon. Friend the Member for Kensington said, in the present state of affairs we are getting realignments almost every week, and in some cases up to 5

per cent. in a day. No one can call that a managed float by any manner of means.
My right hon. Friend the Member for Chipping Barnet was right when he said that all this is a matter of degree. But the more stability we can get the better, I should have thought. After all, as the Chinese proverb said,"The snake in the bamboo is still a wriggling animal." What we shall have now, of course, is more room to wriggle in a wider snake.
We are far from getting fixed exchange rates. We may be getting more stability, but within the terms of the Bremen agreement we would have wider flexibility than members of the snake have now. That is not something negotiated the other day by the Prime Minister. The Heads of Government agreed at Bremen that we should have this flexibility. The Chancellor of the Exchequer said that for the past two years we have needed a margin of only 2 per cent. As my hon. Friend the Member for Kensington said, if that is so, what are we worrying about? If we are worrying, it is because the Chancellor said that he does not believe that we can continue to maintain that situation, and if that is true we are infinitely weaker than he is accustomed to telling us.
All these technical arguments are no reasons for our standing aside. If my right hon. Friend the Member for Chipping Barnet is right and the real question is one of a greater degree of economic convergence, which the Government acknowledge in the Green Paper as being a major item, my right hon. Friend is wrong to deduce that we should stay out. He should be sharing the view of my right hon. Friend for Farnham (Mr. Macmillan) and my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) that we should go inside in order to exercise political influence within and to influence the moves that will have to be made in future.
The Government's second mistake, which is perhaps even more foolish, is that they have attempted to link British support to the separate issues of budgetary liabilities and Britain's contribution to the Community budget. They cannot say that this is no more than a super snake and it does not matter too much whether we are in or out and, at the same time, seek an opportunity to blackmail fellow members of the Community


into having us in on terms that have nothing to do with the merits or otherwise of a European monetary system.
The Government have put our case, such as it is, for changing the budget in a manifestly misleading way, even in the Green Paper. It may impress some people in this country who want to feel the Government are putting the argument about the Community budget, but it does not impress anyone in the Community to make an assessment of our contribution which leaves totally out of account the effects of the monetary compensatory amounts and the arrangements for paying them, and takes no account of the fact that if we were not in the Community we should be paying at least £1,000 million a year to British farmers in deficiency payments.
It is not only that the Government present the figures in a misleading way; they put our case in a particularly selfish way, on the assumption that any move to transfer resources from richer to poorer countries, which is a good thing in itself, must necessarily mean that they will come to us. I do not believe that we are one of the poorest nations that deserve most support.
Our partners in the Community are not prepared to take responsibility for Government policies that have left us economically weak or to evolve a scheme that could be a substitute for our running our economy in a sound financial way.

Mr. Nick Budgen: Will my right hon. and learned Friend explain why, if the Tory Party believes that equality between people is not necessarily a good thing, we should strive for equality between nations?

Mr. Rippon: I do not think that we strive for an equality between nations imposed from outside. We want equal opportunity, and the Community will not pay for our failure to seize the opportunities to deal with our own problems. It may be argued that a European monetary system will make it easier to solve some of the budgetary problems on which we have a genuine case, bearing in mind that the size and shape of the Community budget is a matter for discussion every year. The size and shape of the budget and the common agricultural policy can

and should be changed, but they will be changed only when we are no longer represented in the Community by Ministers, such as the Minister of Agriculture, with an indomitable will to fail.
If there is to be a real transfer of resources from richer to poorer countries, we should be saying not simply that we should benefit but that Greece, Spain, Portugal and Turkey should be major beneficiaries, on the assumption that one day they will all be full members of the Community—accepting as I do, in the Foreign Secretary's words, that enlargement is historically inevitable and politically desirable.
We would carry more weight if we recognised that we must reduce economic and social disparities, not only between the existing members of the Community but as between the Community and new applicants for membership.
We in the Conservative group have argued the case for this in the European Parliament and we have said that we need something of the magnitude of the Marshall plan. We would all gain from such a transfer, just as both United States and Western Europe gained from the Marshall plan after the war. The Chancellor of the Duchy of Lancaster from time to time has made this very point. What Churchill called:
 the most unsordid act in human history 
benefited all the parties concerned, the United States no less than Western Europe, and that has been too easily forgotten by the beneficiaries in Western Europe.
The results of the Marshall plan should teach us to beware of the mentality that is all too prevalent today, especially among some Labour Back Benchers—namely, that one man's gain must necessarily be somebody else's loss. I believe, in the words of my right hon. Friend the Leader of the Opposition, that all of us have everything to gain by co-operating with our partners rather than by standing aside from the scheme which they have put up. That is the positive approach, and is the only approach which I believe will succeed.
The Government might well have argued from the outset the need for a much broader approach based on the Commission's original proposals for a five-year action programme, which was


to be approved by the Council year by year and which, I think, had much to commend it and was more in keeping with the tone of the Copenhagen summit meeting.
The Commission's programme envisaged a convergence of the economies of the member States over a five-year period involving, first, increased co-ordination of shorter-term monetary policies; secondly, greater cohesion of European currencies but with:
 no question of interfering with or impairing the… management of exchange markets ";
and, thirdly, an increase in the financial resources available to the Community through the various Community funds.
In the monetary and exchange sphere, the programme specified that there should be both freedom of internal capital movements, as my hon. Friend the Member for St. Ives (Mr. Nott) has argued consistently, and the abolition of monetary compensatory amounts. I thought that those two objectives would have been shared on both sides of the House. However, instead of arguing that in the longer term the European monetary system, to be successful, must be something more than an exchange rate regime, the Government have allowed themselves to be, as I see it, needlessly isolated.
What we should have done—and must even at this stage now do—is to declare first of all that we are going into the European monetary system. Secondly, whatever transitional arrangements may be made which are in accordance with the annex to the Bremen communiqué, such as allowing member countries
 currently not participating in the snake to opt for somewhat wider margins around central rates ",
we should say that we do not intend to be second-tier or second-rate members of the European monetary system.

Mr. Healey: The right hon. and learned Member for Surrey, East (Sir G. Howe) made it clear in opening the debate for the Opposition that he believed we ought to join the second tier by accepting a wider margin than the others, Can the right hon. and learned Member for Hex-ham (Mr. Rippon) explain how what he has just said can be reconciled with the view of his Front Bench colleague?

Mr. Rippon: Because we go in on the basis agreed at Bremen which allowed

transitional arrangements for those who are not in the snake, which is sensible, I would not allow that to create a situation in which we allowed ourselves to be called two-tier or second-rate members. I would like it to be clear that in no circumstances would a British Government, as they have always said, concede the concept, which we rejected in the Tindemans report, of a kind of two-tier membership. I do not believe that accepting what was proposed in the Bremen annex means that one must become a second-tier member in any sense at all. We should simply say"We are going in, and we accept the condition in the Bremen annex."
In the shorter term, as the Chancellor of the Duchy of Lancaster said, again in the debate on 26th June:
 The weakest parts of the adjustment process are that we fail to achieve stabilisation of currency and, linked with that, that we have failed to achieve an adequate financing of current account deficits between nations."—[Official Report, 26th June 1978; Vol. 952, c. 1173.]
Above all, we have failed to deal with what he called an"ocean of rolling money"that magnifies every imbalance. That is the first objective that we ought to be seeking. It does not prevent us from looking at the wider objectives one by one and working on the wider objectives set out in the Copenhagen communiqué
Finally, we ought to bear in mind very much what my right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) said about zones of monetary stability being needed not only to help beat inflation and to increase jobs but also to benefit people in their ordinary transactions. We should not have simply theoretical arguments about the merits of managed floats or fixed but adjustable parities, or whatever. That will go on, no doubt, for a long time
My hon. Friend the Member for Croydon, Central was a little unduly critical of the Association of British Chambers of Commerce. The association reached the conclusion that the EMS offered an opportunity for Britain that we would be foolish to reject. As the association points out,
 A large proportion of our members already see Europe as their home market and find currency conversion a significant risk cost which should be diminished.


The association does not ask for it to be eliminated. It cannot be eliminated. But it is reasonable to take steps to diminish the sort of fluctuations which have been taking place in recent months.
Certainly, in our negotiations with the Community, once we get ourselves in the right posture of a positive welcome of the system with an intention to join, we can then start making our points effectively, saying that it must be of concern to all of us—not just to Britain but to all the members—that there is sufficient flexibility that common sense can operate to deal with temporary difficulties and mishaps. I entirely agree with what the hon. Member for Farnworth (Mr. Roper) had to say about that. There are bound to be some mishaps. Until one has created the system and begun to work it with good will, one will not be able in advance to settle all the problems that might arise.
Therefore, we must argue for adequate contingency plans. We may doubt, for example, as the hon. Member for Kingston upon Hull, East (Mr. Prescott) said, whether the total credit to be available to the system will be sufficient. The European Monetary Fund which is to replace the existing European Monetary Cooperation Fund is to be brought into existence—I quote the Bremen communiqué
 not later than two years after the start of the system.
Even then, we may doubt whether the total credits which are to be available—£17 billion against the original proposal of £34 billion—will be really adequate. We are a long way from the concept of the pooling of reserves. Perhaps we should have some observations about that.
In the longer term, we may agree with the view put forward by The Times—it may be its last major pronouncement, unfortunately—that there should, for example, be a central authority in the end to regulate money supply throughout the Community, something like a federal reserve board.
But these are not decisions that can all be taken in advance. They will be taken step by step, and we must be in the system before we are able to express a view either for or against a proposition

of that kind. As the President of the Commission, Mr. Roy Jenkins, observed,
 We have to look before we leap and to know where we are to land. But leap we eventually must "—
and not too late.
My hon. Friend for City of London and Westminster, South mentioned that nobody had referred to Messina. I think that we should remember what happened at Messina in 1956, when my right hon. Friend the Member for Chipping Barnet was a senior member of the Government saying much the same things as he said, I am afraid, this afternoon. At that time we could virtually have written the Treaty of Rome in any way that we liked. Instead, we took away that minor civil servant and took no part at all. The Treasury experts of that day—wrong as ever—said"It will not happen. If it does happen, it will not work. If it works, we will join."
We know what that cost us. The French have a saying"The absent are always wrong ". I hope that we shall not be absent from the European monetary system in the way that we were absent from the beginnings of the European Economic Community. I take no satisfaction from saying that I expressed these views in 1956 in this House, but I would certainly almost despair if we turned our backs on destiny for a second time.

11.31 p.m.

The Chancellor of the Duchy of Lancaster (Mr. Harold Lever): Not the least interesting of the speeches made in the debate was that of the right hon. and learned Member for Hexham (Mr. Rippon). I hope that, in view of his generosity of quotation of my own remarks, it does not sound churlish if I have some adverse as well as favourable comments to make on some of the points that he made.
Most right hon. Members look in vain for a Boswell who will chronicle their words of wisdom to the world at large, and often have to deputise in that role themselves. But the right hon. and learned Gentleman was kind enough to relieve me of that necessity.
There was so much of what the right hon. and learned Gentleman said that I liked that I wish he had not said some of the things that I disliked intensely. Above all, I liked the concept behind his argument which is at the heart of this


matter—namely, that in these proceedings we start in an interdependent world with the realisation that it no longer is the rule that one man's gain is another man's loss. In fact, in an interdependent world the very opposite is true—that one man's loss can never be another man's gain. I liked that very much. I even liked the right hon. and learned Gentleman's suggestion of reviving goat sacrifice in the Treasury. It might represent possibilities of greater accuracy in prediction than we have so far had in the post-war period.
What I found very disturbing in the right hon. and learned Gentleman's argument was his indifference to the genuine differences of opinion and difficulties that exist on this very complex subject and on the question of Europe. These differences exist in the House and elsewhere among all parties and the media and to the very troubled hearts and contradictory impulses which are moving us all. I think he should have recognised that a little more than he did.
I certainly thought that the right hon. and learned Gentleman was very ungenerous to my right hon. Friends' role in the matter of currency stability and the European monetary system proposals in believing that they have been hampered in their formation of view by a fear of a group in the Labour Party which is anti-European, wishes that the referendum had gone the other way and is seeking to act as a court of appeal from the British people to reverse the decision that they so boldly and firmly took on that occasion. I thought that the right hon. and learned Gentleman was playing to part of his own gallery, at any rate, in making those allegations.
I hope that I shall not be claiming undue indulgence about certain aspects of the debate if I mention that I was asked to take the place of my right hon. Friend the Foreign Secretary in certain circumstances. I hope that I shall be able to satisfy the House not only on those areas of his expertise which are the constitutional legal matters, in which I am not quite as expert as he is, but on other points which have been made in the debate.
I am glad that we have had this debate because it has brought into the balance all the strands of difficulty and controversy about these proposals. What has troubled me a little is that some speak-

ers have derived their attitude to the EMS—for or against—directly from their stance for or against the Community. I do not think that that is the best way to approach this issue. It is certainly not my own way. I think that we must assess these proposals on their merits against the background of the serious problems that we are trying to deal with, namely, the breakdown in the past seven years of the international monetary system as we knew it, with all the damaging consequences which that has had for confidence, trade, investment and inflation.
In saying that, I do not in any sense resile from my passionate conviction that we were right to join the European Community or from my passionate conviction that we should develop our role in the European Community firmly and progressively to make a great success of it.
This problem is one of the most serious faced by the world today, and the whole world now recognises that the present international monetary arrangements must be improved. The Government's view is that these are common problems, involving common responsibilities and demanding common action. If we are to achieve a greater degree of collective monetary and economic security—that is the Prime Minister's phrase—a greater degree of international co-operation and we should not retreat from international co-operation, as we did after Bretton Woods broke down.
My right hon. Friend the Prime Minister put forward a five-point international plan early this year, of which one of the key points was the need for greater monetary stability. This plan was adopted as the basis for discussion and decision at the economic summit in Bonn, and it was within this framework that the proposals for an EMS were made by Chancellor Schmidt and President Discard. For this reason, the Prime Minister made clear from the outset that the Government fully supported the objective of these proposals of Bremen. But he also made clear that the details of the scheme would be exceedingly important because these are bound up with the scheme's success.
If a scheme or system were set up and subsequently had to be dismantled or reduced in scope, the result could be the very thing the system was designed to


avoid—a period of further currency instability.
We have negotiated from a consistent position throughout the discussions. There has been considerable progress. Subject to the final decision of the European Council, it is agreed that the EMS will be set up and will come into force on 1st January 1979. It is agreed that a new European currency unit will be created as the basis of the system. It is agreed that substantial new credit facilities will be set up within the Community, to an amount of 25 billion European units of account—£17½ On this point there has been progress since my right hon. Friend the Chancellor of the Exchequer laid his memorandum in the House. There is now unanimous agreement to this larger figure. The right hon. and learned Gentleman might have been generous enough to pay tribute to my right hon. Friend the Chancellor for having pressed for this increase and for having played a considerable part in achieving it.
It is agreed that a European Monetary Fund will be set up. This major European enterprise will take up to two years to put in place, and no doubt many problems will arise on the way. But the concept is agreed and the Government welcome it as a potentially major contribution to international stability.
It is also agreed that consultations on economic policy within the Community will be continued and perhaps intensified. We strongly welcome this. It is a generally accepted view that an exchange rate margin scheme will not of itself bring about the stability we want as the basis of more economic growth and greater welfare. There must also be efforts to achieve convergence of the present different economic trends among members of the Community. We all have to try to arrange our economies in a way which is compatible with securing this objective of stability and to continue to do this together as a concerted effort, as we have begun to do this year inside the Community with the plan of concerted action for growth—another matter in which my right hon. Friends the Chancellor of the Exchequer and the Prime Minister can claim very considerable credit and which has not only been to the advantage of this country and of

Europe but has brought about political and economic co-operation in the world generally.
These efforts that have been made on growth certainly support the cause of exchange rate stability. They, in turn, have a better chance of success if they are associated with well constructed exchange rate arrangements. We have learnt by bitter experience in recent years that economic stagnation is no recipe for exchange rate stability. Nobody believes that we will get such stability out of economic stagnation—in fact, the very opposite has proved to be the case.
I do not know why some of my hon. Friends should suppose that Helmut Schmidt, Giscard d'Estaing and my right hon. Friends have not learnt this lesson and are going into a stabilisation scheme in order to achieve stagnation, in the hope of getting stabler rates in currency. All the bitter experience of the last year has been that economic stagnation is the enemy of exchange rate stability.
There remain areas of disagreement about the exchange rate regime itself, and discussions will continue right up to the time of the European Council. There has been considerable progress here too. All the discussions have taken place without commitment by those concerned and are subject to the final decision by Heads of Government at the European Council. The Government have contributed fully to these discussions, first, because we support the principle of trying to improve exchange rate stability in Europe and, second, because, whether we join fully or not, the existence of the EMS will affect our economy.
I cannot agree with those who argue that we should turn our backs and have nothing to do with it. That is not a realistic option. Equally, I cannot agree with those who have argued that we are paying too much attention to detail and even that we are being insincere in raising particular objections to the proposals. I repudiate any suggestion that our proposals have been put forward in bad faith. These have been legitimate and constructive proposals, designed to strengthen the scheme and to produce an optimum, effective and lasting European system.
My own assessment of the merits of our proposals, far from being that these were made in bad faith, is that it would


have been to everyone's advantage if all participants had accepted the proposals. Some of our proposals have been accepted. The Prime Minister and the Chancellor of the Exchequer have been negotiating throughout in good faith and with good purpose. We intend to continue in that spirit. The Government have not yet taken a decision. As has been made clear, not all our proposals were accepted by our partners, though at no time have we been isolated. We must now assess the overall positon, and, if we decide not to join the exchange rate regime at the outset, we shall continue to act responsibly as we have done from the start.

Mr. Eldon Griffiths: The Chancellor of the Duchy of Lancaster is making a very positive and welcome statement of the Government's approach. If the objective is agreed, as he said it was, a great deal of progress has been achieved by his right hon. Friend, but some very real difficulties remain. Will he tell us whether we would not be more likely to make progress and get agreement on what remains if we had said"Yes"in principle and decided to take that positive step? We would then be much more likely to get the concessions from our partners than if we stayed outside and carped about it. That would not achieve the remainder of the progress that the right hon. Gentleman and I both wish to see.

Mr. Lever: I am glad that the hon. Gentleman finds my remarks clear and positive. They are intended to be clear and positive, but they are incompatible with the suggestion that our questionings and arguments are in the nature of carping from the outside. As I have said, we have made it clear from the start that we completely share the objective of achieving European currency stability by a soundly constructed scheme, and we shall do our best to bring that about.

Mr. Hamish Watt: What would be the right hon. Gentleman's answer to the charge that he is acting with incredible naivety and that in going in at this stage we are going in when Britain's currency will soon be very strong because of the large amounts of oil that will be coming ashore in the next few years? We are weak now, but we shall have a very strong

currency, and it is to France's and Germany's advantage to have us in the EMS.

Mr. Lever: It is to everybody's advantage to have us in the EMS. I am grateful to the hon. Gentleman for levelling the charge of naivety against me. I am unhappy to tell him that much worse accusations are more normal.
We shall aim to co-operate fully with those of our partners which wish to set up and participate in these arrangements. We shall aim to participate in full in all the discussions on the development of the system, including the development of the ECU as a reserve asset, the credit arrangements and the European Monetary Fund.
One of the aspects of these proposals on which all are agreed is that the system must be brought into a constructive relationship with other world currency systems. I very much welcomed what the right hon. and learned Gentleman said on that. I heartily agreed with him.
We hope to see fruitful discussions take place on the relationship between EMS and the other major world currencies, especially the dollar. My right hon. Friend the Prime Minister has already welcomed in the House the measures taken by President Carter to support the dollar. We need to build on those measures and lay the foundations for greater world currency stability, in which Europe must of course play a prominent part.
I must confess that I have some difficulty in understanding why some of my hon. Friends, who I know are passionately concerned to attack the problem of currency instability and the injury it does to our employment prospects and the economic prospects of this country, Europe and the world, are not enthusiasts about having my right hon. Friends the Prime Minister and the Chancellor of the Exchequer in action in precisely these areas of linking the constructive achievement of the European monetary system with further constructive achievements in relation to the world system, and in particular the troubled dollar.

Mr. Tim Renton: Can the right hon. Gentleman explain why, in his judgment, if the Prime Minister makes it clear next week that we shall not join the monetary system at the start, his right hon. Friends will still be able to play the full role that


he has described in the discussions about the development of the reserve role of the ECU, for example?

Mr. Lever: I shall be very disappointed if my right hon. Friend reports next week that we are not at any rate joining these aspects of the European monetary system. I hope that we shall be successful in the discussions. Whatever may be the case with the intervention aspects of the EMS, I hope that nobody in Europe or this House would think it an advantage to the world if we were excluded from a role in relation to the vital task of linking the achievements of European monetary stability with greater world monetary stability. [HON. MEMBERS:"Why? "] I suggest that hon. Members should read what I have said. Perhaps they will see that we intend to play a full part, assuming that we can win the assent of our colleagues in Europe to our doing so.
We shall also participate fully, as we have always done, in discussions within the Community aimed at improving economic convergence. In recent years we have played a leading role in this. If the EMS comes into operation, it will strengthen the tendencies to economic convergence and the scheme itself will be strengthened in turn by such economic convergence as it furthers.
In this context, the Community budget is important. Our aim is to secure agreement that in future Community policies taken as a whole, including the budgetary mechanism, contribute to the Community's own objective of convergence of economic performance.
The Prime Minister was in the forefront in reaching the very valuable agreement at Bremen that there should be studies of the measures necessary to strengthen the economies of the less prosperous members of the Community in the context of the EMS proposals These studies have been carried out, and we regard action on the basis of them as of the highest importance.
I do not put forward these arguments either as a demand for a handout for our country or in any surly, resentful or antagonistic spirit. I put them forward as a partner to partners seeking to create the optimum conditions for European partnership, which must mean the correction of anomalies as they arise in the appor-

tionment of burdens and responsibilities within the Community system. There is nothing anti-European in wanting that. In fact, in the long run I am sure that we serve the purposes of European partnership and intimacy by achieving the best basis and one which removes anomalies of contribution looked at fairly from a European standpoint as well as the standpoint of this country.

Mr. Dykes: The right hon. Gentleman appears half-heartedly to be putting over a case in which he does not believe, and I am sure that he wishes that he could say more. Why does he think that Italy, with a higher rate of inflation and a much more vulnerable currency, can join the scheme right away and we cannot?

Mr. Lever: Of course we have not yet had the Italian decision. The hon. Member will be surprised to learn that I do not make the Italian decision. They make it themselves. By a similar process of constitutional logic, we make our decision ourselves, and I welcome anyone making a contribution to the greater cause of European unity and European monetary stability.

Mr. Budgen: The right hon. Gentleman said that we were not asking for handouts. In that case, is he saying that, as he would put it, ordinary working people in Lancashire have any desire to give great subsidies to, shall we say, the Italians or the Greeks?

Mr. Lever: The hon. Member is talking about two different things. My Government are not seeking handouts. They are seeking the correction of anomalies which have developed in budgetary structural allocations. If the somewhat snide aspect of the hon. Gentleman's question is that I am afraid of telling those people in Lancashire whom I represent that it is reasonable and intelligent to show the vision and generosity of stronger countries—and I pray that we be so regarded in due time—making resources available to weaker countries, I have no difficulty. They are much more intelligent than some of the hon. Members roistering on the Opposition Back Benches. Some of them at least have recognised what the right hon. and learned Member for Hexham said, that vision and generosity pay in international affairs in the latter part of the twentieth century. [Interruption.] If there are imperfect perceptions about


this, they are to be found in various parts of the House.
I ought to deal with some specific aspects of the debate. First and foremost, I shall try to deal with the legal questions that were raised. The right hon. and learned Member for Surrey, East (Sir G. Howe) and others asked about the legal implications of the EMS. The existing snake arrangements are largely independent of Community legislation. A basic commitment entered into by snake countries to peg their parities is a matter between their central banks; it is recorded in the proceedings of the Community but not embodied in any Community legislation. The very short-term credits on which snake members can draw are similarly arranged between central banks.
The short-term credit facility in the Community, which is available to all members of the Community and not only to members of the snake, is also established by agreement between central banks. The Community's scheme for medium-term financial assistance was established by a Council decision in 1971. This scheme was therefore set up by a Community legal act which was adopted unanimously.
Discussion of exactly how the various elements of the EMS fit into this picture has not got far within the Community. Clearly the exchange rate commitments themselves could, as with the snake, be undertaken between central banks, without a need for further legislation. The Community might, at some point, wish to pass a general framework regulation enshrining the exchange rate arrangements, but no proposal has yet been made.
There will need to be a new Council decision to expand the medium-term facility if that was decided on as a way of achieving 25 billion EUA of credit effectively available in the interim period before the European Monetary Fund is established. Again, no proposal has yet been made.
A new Community legal instrument would also be needed to convert the European Monetary Co-operation Fund into a European Monetary Fund. This is a development for the future: the Bremen annex suggested that this might come two

years after the first launching of the currency system.
Two draft Council regulations have been proposed by the Commission. These would make the ECU the unit of account for the EMCF and would enable the EMCF to receive deposits of reserves from member States and to issue ECU which would be used as a means of settlement. These regulations have been deposited in the normal way—document R/2790/1/78—and recommended for debate by the Scrutiny Committee. I hope that the debate will take place shortly.
From the Community point of view, no further legislation would be required for the EMS to be set up on 1st January 1979 with an exchange rate system consisting of parity grid and an ECU indicator and a settlement system operated through the European Monetary Co-operation Fund which would use the ECU as a reserve asset.
If the legal position is that further Community legislation is required, the Scrutiny Committee will examine the legislation and may recommend it for debate. The form of any such debate would, of course, be a matter for decision nearer the time, but it would probably be on a motion to"take note"of the documents concerned. I can assure the House that it will have ample opportunity to debate these measures under the scrutiny arrangements that we have.
I can now repeat what the Chancellor of the Exchequer said in words of limpid clarity on which I could not improve.
 I can also assure the House that if the Government decided that Britain should join the exchange rate regime, they would submit their decision to Parliament for debate and, if necessary, for a vote before the regime came into operation on 1st January next year.
The documents quoted by my hon. Friend the Member for Newham, South (Mr. Spearing) were removed from this debate after pressure by Back Benchers who wanted a separate debate and an opportunity to vote on the documents. The Government characteristically responded to this request and I hope that we shall have a debate soon.
My hon. Friend correctly quoted the regulation establishing the EMCF. Whatever the purposes of the EMCF, progress towards EMU would be a matter under the control of the Council of Ministers. It cannot creep on us unobserved, subtly


and without comment. The present proposals are fundamentally different from EMU and are not a step towards it. My hon. Friend the Member for Newham, South appears to express some derision at the idea that EMU cannot creep up suddenly in the night.
These fears are slightly paranoid. The idea that, without this House being aware of it, all our democratic controls, liberties and possibilities are filched from us by cunning Front Benchers like the Chancellor of the Exchequer and the Prime Minister is a paranoid myth. I know that my hon. Friends who make this criticism feel that they might be too timid to raise objections while these fundamental liberties were being assigned to faceless men in Europe, but they can rest assured that there are other vigilant Members who are not too timid to raise their voices while such drastic action as the deprival of our rights is taking place.

Mr. Spearing: I was not laughing about its coming up unobserved. I was laughing at my right hon. Friend saying that it will not lead to EMU. On his own admission, the regulation founding the European Monetary Co-operation Fund was fashioned expressly to that end, as were the words which I quoted.
My right hon. Friend also claimed that it was impossible, or unlikely—he used a pejorative word to which I do not take exception—that anything untoward or underhand would happen to take away the rights of the House. I am afraid that my right hon. Friend is wrong. On the night of 8th-9th December 1975 an amendment to the Treaty of Rome was approved by the House which gave greater powers to the EEC Assembly to decide the non-obligatory part of the budget. It was done in such a way that the House was unaware of it. The only two people who were aware of it that night were the right hon. Member for Down, South (Mr. Powell) and myself. Therefore, my right hon Friend's epithet was wrong and I was right.

Mr. Lever: What my hon. Friend is complaining of is the will of the House as it was expressed at that time.

Mr. Spearing: It was trickery at the time.

Mr. Lever: It is sad if the hon. Member believes that he and the right hon. Member for Down, South (Mr. Powell) were the only Members who understood the regulations. If that were true, it would be a serious reflection on democratic proceedings.

Mr. Spearing: It is the truth.

Mr. Lever: I shall deal with other fundamental aspects of the debate. One of the arguments was that joining the EMS will bring deflation. Stagnation has not proved to be a splendid recipe for currency stability, so I am not clear why hon. Members should have this anxiety.
It has been said that the Germans thought of this scheme with malign purpose. An hon. Member said that the Germans regarded it as a type of boa constrictor. Those who see this problem in that way underestimate not only the moral, political purposes of Helmut Schmidt and the German Government but their intelligence. No country in the Community requires the political cohesiveness of the Community as much as Germany. No country has set its policies so firmly and clearly in that direction as Germany. No politician in Europe has recognised that more than Helmut Schmidt. It is absurd to imagine that he is the author of a scheme which has as its motivation the impoverishment of the other members of the Community. How would that line up with political coherence?
What naivety must exist in the minds of those who attribute such purposes to Helmut Schmidt! It is absurd to say that there would be advantage to Germany, except for a paltry few months, from any such misguided injury to his European partners. Not only would he have to bluff my right hon. Friends, who are not the most naive members of the Community or the most uncritical, but he would have to bluff every country in Europe. Not only would we be tied to the German chariot wheel by some malign trickery of the Prime Minister and the Chancellor of the Exchequer, but apparently the Italians, the Irish and the Dutch would be there too.
Not only that, but the Norwegians, who are not even members of the Community, would be hastening to this Germanic diktat, to their own ruin. The whole thing is an absurd concoction. It has no credibility at all.

Mr. Hooley: My right hon. Friend's general diatribe might sound reasonable in practical terms, but Germany is destroying the Sheffield special steel industry.

Mr. Lever: This is not a debate about the Sheffield steel industry, although I understand very well my hon. Friend's concern about it. But he must not attribute motives to the German Chancellor in formulating the scheme. My hon. Friend and those who subscribe to the conspiracy theory also seem to believe, as on the famous occasion of the debate when only my hon. Friend the Member for Newham, South and the right hon. Member for Down, South understood the regulations, that only one or two of my hon. Friends have understood this dreadful conspiracy against Europe.
The whole of Europe, which is to be its victim, has not understood it. The United States, which my hon. Friend the Member for Sheffield, Heeley (Mr. Hooley) supposes to be an intended victim, too, of the machinations of the EMS, is so deluded that not only does it not take defensive measures against it but it is actually to be heard encouraging the Europeans to engage in this criminal activity to injure all the weaker members of Europe, the United States and, no doubt, the Japanese to boot. It is not a convincing argument.
I do not doubt that my hon. Friend the Member for Heeley shares my passion for removing the threat to employment and to the economic prospects for this country, Europe and the rest of the world that currency instability has created. My right hon. Friend the Chancellor of the Exchequer has emphasised that. We differ in that my hon. Friend has allowed his anti-European position to lead him to believe theses that he could not conceivably support if he took a more detached view.
One does not have to be an enthusiastic European to support this system. I beg my hon. Friend to believe that if there were no European Community, or if we were not members of such a Community, I would still support the EMS, and I would still believe that it could perform a vital role in world affairs in achieving greater monetary stability and removing to some extent the curse

of chronic unemployment and the even greater financial crisis that threatens us.
When my hon. Friend the Member for Southampton, Test (Mr. Gould) says that it is important to consider the economic consequences of the proposals and not see them just as a political issue, I say"Amen ". My hon. Friend believes that the pound would be held at a higher rate than would otherwise be the case and that the rate for the deutschemark to the dollar would at the same time somehow be preserved. I do net know why anyone should assume that in the EMS or a properly reconstructed currency system any country would be obliged to operate at a rate that it thought was undesirable.
What would be changed would be the yo-yo effect of the present system upon currencies which produces changes which do not reflect the differentials. Sometimes it suppresses the fundamental economic factors altogether for a period. On other occasions there is an elephantiasis of the expression of differentials, grotesque changes in parity which bear no sensible relation to economic fundamentals.
I therefore do not understand the argument that one is obliged to run a higher parity within the system than one would run outside it or than one would think desirable in a system which had specifically made arrangements to permit appropriate changes in currencies.
I was startled that more than one person used the argument that the idea of being brought within the German protectorate, or the D-mark zone, was all right for small countries adjacent to Germany but threatening to ours. I am not quite clear why that should be so. It is said that they do more trade with Germany and that, therefore, somehow it will not affect them as much. On the contrary, the more trade one does with that tough, competitive nation, if devaluation is a means of maintaining competitiveness, the more crucial it becomes that one should have that right to devalue. Surely, smail countries in an intimate relationship with Germany have a greater need of currency flexibility, if that is to help them, than countries such as the United Kingdom which do not have as much trade with Germany as a proportion.
My hon. Friend the Member for Southampton, Test, in omitting no possible argument in a comprehensive list of opposition arguments, went to extreme limits when he blamed our unemployment on our bilateral trading with Germany. My hon. Friend described the surpulus that the Germans enjoy with us as being"clobbered by the Germans ". I do not know whether he wants to encourage any countries with which we enjoy a surplus to regard themselves as being clobbered by us. My hon. Friend said that our troubles have come about because the Germans refuse to reflate or revalue. In fact, the Germans are reflating. The Germans have revalued.
I hope that some of my hon. Friends who are passionate devaluationists and regard devaluation as the cure for failing competitiveness will study some of the figures. In between 1960 and 1976, the deutschemark doubled in value against the dollar. That did not seem to do much for the dollar's competitiveness or America's competitiveness against the Germans. Their relative competitive position was worse after the 16 years during which their parity was halved than it was at the beginning.
As my right hon. Friend the Chancellor of the Exchequer said, devaluation is a subtle process. It has many aspects and many strains. For me, the central aspect of devaluation and its central weakness is that it gives an added twist to the dynamic of inflation that is often at the root of failing competitiveness. It is an odd remedy. In fact, it is not a policy. It is sometimes a painful inevitability marking a failure of achievement. There is a great difference between parity downward change as a policy and parity downward change as a consequence of failure which sometimes has to be accepted.
I do not want to trespass too much upon the time of the House. I have tried to deal with as many as possible of the comments that have been made. The fact is that the Government must make their decision whether sterling should be included at the outset in the exchange rate regime.
Whatever the decision, we are and will remain a full member of the European Economic Community in accordance with the 1975 referendum. We shall continue to take part fully in all the Com-

munity's economic and financial discussions. I reject all suggestions that we, or any of my colleagues, have set out to obstruct the proposals or that we have acted irresponsibly, still less in bad faith. The Green Paper makes it clear that that is not so.
We all regard the decision on these issues as of lasting importance not only to the country but to Europe and to the world. I am sure that my right hon. Friends will play their part in that way.

12.13 a.m.

Mr. Nigel Forman: It is difficult for a weary Back Bencher to follow the Front Bench speeches at this time of night. I presume to do so only because I promised my wife before coming to the House yesterday that if I stayed up this late I should try to get my thoughts on the record.
I was encouraged by the positive spirit of the speech of my right hon. and learned Friend the Member for Hex-ham (Mr. Rippon). I hope that his remarks will be fully considered and given their full weight by the Government. I was encouraged by what the Chancellor of the Duchy of Lancaster had to say. I hope that his positive approach to the matter will prove persuasive with his Cabinet colleagues when they meet later today. I understand that the Cabinet will meet today to take a final decision before the Prime Minister goes to the summit next week.
The European monetary system may not come to anything very much, but on the other hand it may mark the beginning of significant new developments, as a number of hon. Members have said. One thing is clear—that the French and German Governments are obviously determined for political reasons to launch the scheme and establish it on a durable basis. That above everything else should serve to concentrate the mind of the Government and to increase the importance of the decision.
If there was one thing in particular which worried me about the line of argument of the Chancellor of the Duchy of Lancaster, it was that it reminded me, as a student of British history, of the line which the late Winston Churchill took—in one of the few mistakes he made in a long and distinguished career—over the European Community of six at the time


when they were considering going ahead with the Schumann plan in 1950. At that time, the memorable Churchillian phrase was that"We are with them but not of them." I fear that the Government are in danger of making a parallel mistake today.
The arguments against our joining this system fully on 1st January have been well rehearsed and I shall not weary the House at this time by repeating them at length. I shall simply touch upon a few of them to highlight what is a strong technical case against our entering the system but which, I hope to show, is outweighed by wider considerations, political and economic. I shall tick off the main arguments in the case against entry, which I am sure the Chancellor of the Duchy of Lancaster will hear again later in today's Cabinet meeting.
The first main argument is that our full participation in the scheme could lead to the loss of up to a million jobs in the United Kingdom and a loss of up to 8 per cent. of our GDP by 1981. Those are the figures we have in mind from the Terry Ward calculations.

Mr. Lever: Does the hon. Gentleman realise that those calculations are based upon assumptions which I would regard as wholly false—namely, that we shall be forced to have an exchange rate higher than is desirable and, as a result, will have uncompetitiveness and unemployment?

Mr. Forman: I am grateful to the right hon. Gentleman for that clarification, because in a sense it knocks on the head that argument about the deflationary impact.
There is a second argument which is the very reverse of the first—namely, that our full participation might lead to further inflation, through weakened control of the monetary aggregates if and when sterling strengthened with the United Kingdom in the system. Let us not be too pessimistic. There has been doom and gloom from those who oppose the scheme. But, as my right hon. Friend the Member for Farnham (Mr. Macmillan) said earlier in a moving speech, it may well be that Britain stands on the brink of a great period of revival if we take the right decisions and benefit from proper use of North Sea oil and gas. If that were to be the case, this revival

would be directly and immediately reflected in the standing of our exchange rate. Therefore, it is just conceivable that we might be faced with what might be termed"the German problem "—namely, the inflationary rather than the deflationary impact of EMS.
The third difficulty is the resource transfer point, which has been much laboured by Labour Members. This argues that our full participation in the scheme should be made conditional upon the establishment of a central Community mechanism for substantial resource transfers from the richer to the poorer parts of the Community and—this is the important point—a redirection of existing EEC funds. In other words, we have the"zero sum"argument. That is a narrow and inadequate view of how to build up and strengthen the Community.
Those who oppose this scheme go on to say that if the resource transfer condition were fulfilled, it would take us one stage further towards a federal Europe, with stronger central economic institutions and, eventually, stronger political institutions at the centre to match. This is the political argument against federalism.
Another argument, more sinister to those of us on the Opposition Benches, is that if the federal argument were ever to be fulfilled, it would undermine and effectively shut off a future Labour Government's freedom of action to determine their own policies in their own particularly autarchic way. In other words, it would make"Socialism in one country"—to recall a Stalinist phrase—virtually impossible, and that would recede into the distance.
Finally, there is the classic Treasury argument, to which my right hon. and learned Friend the Member for Hexham (Mr. Rippon) referred when he was talking about the situation in 1956, that the scheme quite simply will not work because of the divergent rather than convergent inflation rates in the member States—in other words, the good old British impracticality argument.
Some also go on, in a more sophisticated way, like my hon. Friend the Member for Croydon, Central (Mr. Moore), to say that it would be damaging to the European cause in any case if the scheme were to fail, as happened earlier with the Werner plan proposals. Those arguments


may be technically powerful, but they are outweighed by the following arguments which I should like briefly to draw to the attention of the House.
The first is that the establishment of a zone of monetary stability in Europe through the scheme could help to get the United Kingdom into what paragraph 39 of the Green Paper described as
a virtuous circle of exchange rate stability, lower costs, greater stimulus to efficiency ".
That was, I think, behind some of the remarks of the Chancellor of the Duchy of Lancaster a few months ago. This undoubtedly, in my view, would outweigh the effects of any initial loss of price competitiveness caused by the inability to do managed floating on the sort of scale and level which have been practised recently. I would describe that argument as the virtuous circle argument, and it is a powerful one.
The second reason why I favour the scheme on balance is that our full participation in it would undoubtedly make it more difficult for any Government in this country to succumb to the temptations of managed floating—or, should I say, managed sinking, more accurately?—in order to keep our exports competitive in third markets and in order to try to shield this country from some of the consequences of its own failures in terms of low productivity, lack of competitiveness and so on. I will call that the removal of temptation argument, but I think that it is of equal importance to the first one. If that temptation can be summarised as the temptation to clip the coinage, which is what Henry VIII did, it is a temptation which I hope any future responsible Government in this country will resist.
A third argument which persuades me is that our full participation in the scheme from the start will reflect what the Green Paper described in paragraph 13 as
 the true spirit of Community action 
and will equally contribute to what it described elsewhere, I think in paragraph 33, as greater stability in the international monetary system. This is what is known loosely as the Communautaire argument. I think that we should not apologise for it at this stage in our history, because we have been in the Com-

munity now for five years and we were trying to get in seriously since 1961. For God's sake, is it not about time that this country adopted a proper, sincere Communautaire attitude? That is an additional reason for favouring the scheme.
The fourth reason that I should like to adduce is that the United Kingdom faces difficulties if we join—that has been widely understood and expressed in the debate—but even greater difficulties, in my view, if we do not join or if we were to join as a second-class country member, which is the sort of metaphor which has been used by several of my hon. Friends.
In view of this, therefore, in my view it would be preferable to join and face these difficulties, with the support of our partners, as the Chancellor of the Duchy of Lancaster was indicating from the Government Front Bench, rather than not to join and to try to face these difficulties on our own. I would summarise that argument as the lesser of two evils argument. That should not be disparaged. As you know, Mr. Deputy Speaker, so often in politics the lesser of the two evils is actually the realistic way to decide a very finely balanced issue.
The fifth argument which persuades me is that our full participation in the scheme especially if it encompasses eventually much more than a simple exchange rate mechanism—which I hope very much it will, and as it should, in my view—will make it difficult or impossible for a future Labour Government to succumb to the temptation to which I referred earlier —namely, the futile and damaging attempt to try to build Socialism in one country by ultimately withdrawing the United Kingdom from the EEC. As I see it, that would be part and parcel of such a policy and would be a disaster for this country.
My conclusion from these schematic remarks is that the position of the Government—and, indeed, of all other member Governments in the Community now—seems to be that they want, first, monetary stability and, second, non-inflationary growth. These are the great objectives of our time. The British Government also put great emphasis on economic convergence within the Community.
In my view, there is a failure to understand that the last objective will come


about only as the desirable outcome of success in meeting the first two objectives and is not in itself a process which this Government—or, indeed, all the EEC Governments together—can bring about as a vehicle for any journey towards a sort of economic Camelot. The real way to achieve convergence is for any British Government to create the necessary conditions in which the country can thrive, business can be encouraged and prosper, if genuine productivity increases can be brought about, non-inflationary pay settlements are struck and a genuine and sustained revival in business and industrial confidence can take place.
We can get temporary palliatives by the dozen by using the macro-economic policy of deliberate exchange rate depreciation, which is the soft option and the first drug that will be proscribed by our membership of the EMS. I am glad of that. We shall get lasting cures for our economic ills only by using the good old micro-economic remedies at plant, company and human level. These remedies are not proscribed by the EMS. Indeed, they will be encouraged by the more stable trading conditions and diminished business risks which the EMS should bring about.
Another nonsense and inconsistency in the Government's policy, as revealed in the Green Paper, is the resource transfer pre-condition. It makes sense to include that precondition only if the Government are putting it in as a pretext for staying out of the EMS. I hope that that is not the case.
The total Community budget is equivalent to less than 1 per cent. of the combined Community GDP and, even on the worst projections for the year ahead, we shall be paying only £15 per head into the Community budget—compared with the £800 per head we pay into the national Exchequer through the Inland Revenue. We must see the issue in perspective and realise that it is nonsense, politically, diplomatically and economically, to try to link our demands on redistribution within the EEC budget to our decision on the European monetary system.
The only way in which we shall get reform of the budget is through expansion. That is how we must deal with it. We should consider the issue on its merits and seek to increase the size of the budget.

The Prime Minister said in answer to questions in the House after the European Council meeting at Bremen that we must consider the costs and the benefits of the European monetary system as negotiated and eventually agreed. I submit that it is more important to look at the opportunity costs to this country of our staying out instead of going in.
We shall find that there are only three options: first, to join the scheme on day one and help to shape it as it evolves; secondly, to join later, on the basis of deferred monetary chastity, and lose the advantages of having a seminal influence on the development of the scheme; and thirdly, to stay out and confirm the United Kingdom in a position of second-rate Community status—something which the Government have come perilously close to achieving with their negative policies towards the Community in recent years.
It is my fervent hope that we shall adopt the first course, since the third would be disastrous and the second, which I fear is the most likely outcome, would be fraught with political risks. We must show that we believe in ourselves and in our future within the European Community.

12.30 a.m.

Dr. Jeremy Bray: I am sure that my right hon. Friend the Financial Secretary cannot be far away, and I assure my right hon. Friend the Chancellor of the Duchy of Lancaster that I shall not be in the least offended if he goes off to bed like a good, sane Member.
There is a far wider aspect of the EMS, but it is not about exchange rate, and I wish to make one very simple point. The difficulties of entering the EMS as at present conceived have been amply canvassed. They come down to the impossibility of entering on any conceivable terms, given our present divergent inflation rate. Therefore, I assume that we shall not go in on the prospective terms on 1st January, and one must ask"Where do we go from here? "
There is a wide range of issues which cannot be negotiated in the context of EMS. Certainly the transfer of resources in respect of the Community budget, important though that matter is, cannot be settled in the context of EMS negotiations


What about the mechanism for the adjustment of the exchange rate, which is what this is all about? The Chancellor of the Exchequer said that other countries of the Community—presumably Italy and Ireland—were coping with the prospective differences of the inflation rate by regarding EMS as a downward-falling peg, I think that the reason why Italy and Ireland are going in and not the United Kingdom lies in the fact that in the present institutional framework of EMS as proposed one can treat the lira or the Irish pound in the context of a downward crawling peg. The possibilities of capital flows in those currencies are minute in comparison with the possibilities of capital flows in sterling. If one goes in regarding EMS as a downward-crawling peg, as I would feel is quite reasonable, one has to make much more thorough preparations to cope with sterling than have yet been made.
My right hon. Friend the Chancellor of the Exchequer seemed to me a little mixed up in his attitude to the practicality of such an approach. On the one hand, in his Green Paper he says that the exchange rate is not manageable, yet on the other hand he is prepared to contemplate managing it to the extent of freezing it totally in relation to demand. He says that he does not regard depreciation as a solution to our economic problems, so his tendency is to say that one can manage it up but not down.
Surely the fact of the matter is that one can nudge the exchange rate around the place. There are other influences upon it, but by intervention, by the open market operations of the banks and by interest rate policies, one can nudge the exchange rate one way rather than another. The problem with EMS as it now stands, by not going in but being prepared to continue to talk and be ready to take part in discussions, is how to exercise that nudging. What it comes down to is studying and negotiating the rules not only for intervention but for realignment of rates and treating them as one and the same problem and also looking at the combined problems of realigning rates and intervening in support of a rate in the context of a crawling peg system.
Had the Chancellor of the Exchequer taken this approach from the start and not introduced divergent considerations

about the transfer of resources, I think that he would have found a readier reception from other members of the European Community to the important issues in Britain's interest which has arisen in the negotiations. There are the issues of durability, divergence, growth and symmetry as well as the Intervention Fund and world-wide stability, but all these are subsumed in considering what are the rules for realignment.
Let me take the subject of durability. The problem of the breaking down of EMS arises where a country is unable to maintain the exchange rate at the level to which other countries are holding it. Its reserves are exhausted and it cannot maintain the rate upon which others insist, so it has to come out of the system. The way to maintain durability in that context is to set the rules so that one can change the rate before one's reserves are exhausted or are in grave disarray.
On the question of divergence, if one's prospective exchange rate—not for years ahead but for the next few months—is going to be, say, 5 per cent. higher than that in Germany, one is quite straightforward about it and says that one expects one's exchange rate to depreciate by 5 per cent. over the course of the next year or at an annual rate of 5 per cent., at any rate until new factors emerge.
This is not achieved simply by widening the band by, say, up to 6 per cent., because, if one does that, it introduces the possibility of its varying by plus or minus 6 per cent. from day to day or week to week—which is not something that one wants to happen. On the other hand, 6 per cent. may not be wide enough as a variation if one wants to adjust one's exchange rates every year or every two years.
Therefore, what we want is rather the commitment to the idea of the crawling peg, that we shall support the present rate but that it will move gently downwards, and that we shall support it within a tolerably narrow band of plus or minus 2 per cent. I see no objection to that, provided that one is straightforward about the direction in which one expects it to move, given the balance of payments and inflation rates.
As regards symmetry, again there is no reason why a crawling peg institution has to work simply as a downward


crawling peg. It can just as easily be seen as an upwards crawling peg. The institutions can be adapted in that sense. It does not introduce the asymmetry problems in quite the same way as the idea of introducing a basket within a grid and all the complexities into which the Government have got themselves by trying to confuse questions of intervention with those of realignment, by treating them separately instead of designing them together.
As regards the intervention fund, again this is a matter of saying how much is needed. If, however, one does not have a very big intervention fund, one cannot be very ambitious about the extent to which one wishes to stabilise one's rates. One will have to agree to adjust the rates more frequently and by bigger margins. But that is all right. The intervention fund is linked with the mechanism of realignment.
Finally, there is the question of world wide stability. Again, if we are to have massive intervention right across the whole of the European currencies vis-à-vis the yen or the dollar, the extent to which that is practicable, given the size of reserves, is limited. We must be prepared to see our reserves used in a sensible way in trying to maintain not excessive stability but reasonable stability.
The House has had great fun at the expense of the Treasury model. I suggest to my distinguished right hon. Friend, a distinguished lawyer, that he should consider the company which he is keeping in this respect. Does he really regard greats, classics, at Oxford in 1940, or the Craven scholarship at Trinity in classics, slightly before, or the hon. Member for Carshalton (Mr. Forman), or a lawyer, I believe, from no lesser college than Brazenose, as the colleagues with whom he would wish to decide his own financial future? Would not my right hon. Friend on the whole prefer to invest in some of those countries—it is very well known that he invests in them—where there is a very different kind of person? If he is prepared to invest there in a private capacity why is he not prepared to invest there in his public responsibility in this way?
I leave that with my right hon. Friend for him to reflect upon rather than to reply to, because it is a matter on which

there are different views among Treasury Ministers. However, the House is not serving itself when it comes to consider these problems of combining the realignment rules with the intervention rules and simply pooh-poohing the idea of the use of effective models in designing those rules. If Ministers pooh-pooh them, they will simply make fools of themselves as well as the House.

12.40 a.m.

Mr. John Cockcroft: The House and the country are undoubtedly facing an extraordinarily difficult decision. To that extent, this is one of the most important debates that has taken place in this Chamber for a long time. We face a deadline which is not of our making, which is creeping up on us daily, and a decision must shortly be made.
The short-term disadvantages of joining the proposed European monetary system may he outweighed by the longterm advantages. There is an extraordinary similarity between the climacterics of British policy towards Europe since the Second World War.
I am glad that, albeit belatedly, the events at Messina were mentioned in the debate. As with Luxembourg, where the Iron and Steel Community was formulated as with the European Defence Community and as with the Treaty of Rome, there has been a marked tendency to be unaware of the significance of what was happening, to understand quite what, and then to be slow to adjust British interests to what the Continentals were trying to do. However, on this occasion British Ministers, to their credit, are aware that something important is about to happen across the Channel which on no account can we ignore in the long term.
The disadvantages of joining immediately are similar to those which faced us at Messina. We are not ready for such a tremendous challenge. Our economy is not ready in many ways—the question is whether it will ever be ready—for such an enormous change to take place.
There have been advantages in moving towards floating exchange rates. Having been a financial journalist for many years, I was a great exponent of exchange rates. But, having said that, I must add that some of the disadvantages in terms of the day-to-day decisions by people in


the city and in business have also become apparent.
The whole concept of monetary union, leading one day to a common European currency, is at this stage too grandiose and premature, as was the common agricultural policy in the early 1960s in terms of prematurity. But to say that something is too premature, too grandiose, too inconvenient for this country, is different from saying"Therefore, we cannot join it. Let us hope that it will go away if we do not think too much about it ". There may be something in such arguments, but we must consider the disadvantages of staying out.
The tenor of the debate, through which I have sat and to which I have listened with great interest since 4 o'clock, has been too pessimistic. There has been a certain amount of pooh-poohing of the report by the Association of British Chambers of Commerce, which points to the great opportunities which are offered by this new step forward towards European integration. That was a report influenced by practical businessmen.
There has been a lack of self-confidence in considering the opportunities which will be offered to the City of London, which is an enormous producer of foreign exchange. At the moment we face controls over capital movements, and so on, which are in contravention of the Treaty of Rome and the Treaty of Accession.
Whatever the short-term technical arguments about delaying our joining of the proposed EMS, it surely is a matter of common sense and political or value judgment that the long-term advantages to the most sophisticated financial institution in Europe—I refer to the various aspects of the City of London—must be glittering, but are cluttered up by the threat that we shall be half in and half out of the proposed European monetary system. If we are to be half in and half out for even a short time the situation will be only too reminiscent of the time when we tried to erect a scaffolding of a larger free trade area round a hard-core Common Market, 15 to 20 years ago, and fell between all possible stools.
This is essentially a political decision. Some scathing references have been made to the origins of the movement towards European union, towards the direct con-

ciliation in the beginning between France and Germany and, even going further back in my own European pantheon, to Churchill's phrase—that France should take Germany by the hand and lead her back into the family of nations. I regret these scathing references. The negotiations—the deal struck at Messina—was based on a wish to get away from the internecine wars which had ravished this Continent twice in a lifetime and three times in 100 years. This proposal for a European monetary system must be seen in this context, of the European ideal; and without the European ideal it is meaningless just to talk about the monetary system as a technical deal.

Mr. Anthony Nelson: Like my hon. Friend the Member for Nantwich (Mr. Cockcroft), I wish to speak in favour of the European monetary system and our joining it fully at its inception. Like other hon. Members who have attended the debate for nearly nine hours, it is difficult for me at this late hour to find a great deal of originality to add to the comments which have already been made so eloquently by a great number of my hon. Friends.
It is an additional disappointment that the people responsible on both Front Benches for influencing these decisions most directly have also disappeared, but perhaps I can turn my attention on the hon. Member for Newton (Mr. Evans) and at least persuade him, with all the powers at my disposal, of the desirability of this system. After all, the Government have said that this is the opportunity for Back-Bench Members to say what they feel about this question. Although the hour is late and although there are not many Members here, I want my voice to be added to the large number who have spoken in favour of the system.
This has been an extraordinary debate from the point of view of the arguments deployed by the opponents of EMS, for a number of hon. Members, particularly on the Left wing of the Labour Party—I think of the hon. Members for Sheffield, Heeley (Mr. Hooley) and for Newham, South (Mr. Spearing)—have argued in favour of the desirability of the free market process in currencies. They have deployed arguments against transfer resources, against aid—all the things which


ordinarily they are the first to cry for and, in terms of the free market, the first they criticise. Yet on this occasion, apparently objectively, they raise the virtues and the arguments against these proposals as a means of arriving at a conclusion against EMS. This is yet another example of the way in which prejudice is rationalised by the anti-Marketeers. I strongly believe that we should not put too much faith in the vociferous comments that we have heard from some of them this evening.
The changed situation within recent years makes EMS a particularly attractive proposition. I was persuaded by the theoretical advantages of floating currencies a decade or so ago. I believe that not only the considerable wash of money now going around the world but the concentrations of that huge increase in money in a few hands—whether of individuals, companies or countries—has meant that a number of currencies are particularly vulnerable to sudden movement, and on a day-to-day basis. The day-to-day movements in the exchange value of sterling over the past year have shown remarkable increases over the volatility that might have been expected a decade or so ago when we were floating.
It is this day-to-day volatility and the uncertainty that it undoubtedly causes to traders and those whose businesses we rely upon as a trading country that makes me believe that any means of promoting stability in currencies can only be in their favour, and therefore in the national interest.
In the past we have had experience of the disadvantages and the problems of a fully fixed regime. We have seen the apparent and emerging problems associated with a fully floating regime. What EMS is doing is going half way. It is in between the two. It will provide for adjustment. While the technical provisions of the scheme have been described to some extent, it is clear, as the hon. Member for Motherwell and Wishaw (Dr. Bray) pointed out, that a great deal of the technicality has not yet been decided upon. It is up to the Government, and within their ability, to ensure that their objectives in assuring that there is an adequate degree of adjustment for the currency, and no great threat on the reserve outlay by any member State, can

be observed within the rules of any scheme that is eventually finalised.
It is very important that we play our part in the international responsibility to provide a more stable international framework for monetary stability, and monetary payments and settlements. Obviously, in recent years we have seen dramatic changes in this regime because of the substantial increase in the price of oil, and more recently because of the decline in the dollar and the uncertainty and lack of confidence that that has caused. Also, the dogged recession has affected nearly all countries.
We must play our part, as the Prime Minister recognised in the Gracious Speech. That means that we must contribute to international efforts to restore confidence in the reserve currencies of an increasing number of countries which rely on trade for their aspirations in future.
I am a proponent of a confederal system for Europe in due course, and I see the EMS as the first step towards the eventual desirable aim of a common currency and full monetary and economic union. My vision of a confederation rather than a federation provides for a large degree of autonomy remaining in the hands of member States. A common currency based on the largest trading block in the world would be an immense encouragement to international trade and the aspirations of member States. The arguments for it are as much political as economic. For this reason I see EMS as a desirable first step towards it.
I recognise that, depending on the strictness of the parity system operated within EMS, there may well be pressures on some of the currencies from time to time. It may well be that a dramatic change in international events will break up that system. But this is an effort to pull ourselves together. It may be a first step on the road towards a common currency and full monetary union within Europe, and to this extent it is desirable. We have nothing to fear from observing the best monetary practices of our European partners. This is one of the best arguments in favour of it.
For all these reasons I believe that we should take a great political step forward. We should not, on this occasion, allow the faint-hearted or the technicians to stand in our way. Like many people in


this country I have been infuriated and frustrated by the stream of petty measures and directives from Europe trying to harmonise everything from the noise from lawnmowers to company law. But here, for the first time, is a real chance to take a great step forward and advance the European ideal.
I believe that many people in our party and in the country as a whole will look upon this as a litmus test of our commitment to Europe and its advancement. For those reasons, I believe that we should join the system and ensure that we are in at its inception, at the beginning of next year.

12.55 a.m.

M. Hugh Dykes: It is in some ways fitting and symbolic that this debate is ending on a high note, in terms of quality. If I may anticipate the remarks of my hon. Friends who may succeed in catching the eye of the Chair, it is a debate that is ending with a succession of contributions in favour of our joining the European monetary system.
The beginning of the debate was characterised by the opposite line, mainly from the Labour Benches but also in one or two contributions from the Opposition Benches. If I may say so without sounding offensive to colleagues who have been here longer, the elderly view—I use the expression in the wider sense—of our inability fully to participate in this great European venture has been replaced by a more modern and up-to-date view.
I refer particularly to the skilful speech of my hon. friend the Member for Carshalton (Mr. Forman) on the complicated but persuasive reasons why we should go in, despite the obvious difficulties. We all feel a natural affection and respect for the Chancellor of the Duchy of Lancaster whenever he speaks in the House, but on this occasion we also felt a great deal of sympathy for him, because it was clear that he was wholeheartedly in favour of our joining the EMS without any delay, yet, because of the peculiar and equivocal line that the Cabinet is taking, he could not bring himself officially to admit that.
What a difference there was between the right hon. Gentleman's temptation to go further and say all that and the Chancellor of the Exchequer's equivocal atti-

tude. What a pity it is that the Chancellor of the Exchequer could not take a bolder attitude with his colleagues.
I know that it is late and that the debate has gone on for some time, but it is a pity that there is no Minister on duty. I hope that the hon. Member for Newton (Mr. Evans), a dedicated Whip, will make a careful note of what is said and make sure that Ministers pay attention to what appears in Hansard. It would be all too easy for them to go away reflecting on the comments made earlier. There were reactionary comments and some disgraceful comments, including those made by the right hon. Member for Blackburn (Mrs. Castle), about the German urge to dominate us yet again, and all that nonsense.
We heard a disgraceful and absurd speech by the right hon. Member for Down, South (Mr. Powell), which might unduly affect the debate. I hope not. It was a speech by a right hon. Gentleman whose view about the whole European exercise was encapsulated only a few weeks ago in the inspiring sentiment that really the Germans hated us still because we had won the war in 1945 and the French had never forgiven us not only for not supporting them over Algérie Francaise but because we had beaten Napoleon.
I suspect that the right hon. Gentleman is the leader of a diminishing range of opinions and people in this country and Ulster. But it is absurd for anyone who is apparently a leader of opinion to come out with such reactionary statements about the EMS and its apparent disadvantages. I am glad that on this occasion he just failed to end with the usual"Beware, Britain ", and so on. He spared us that, but the rest of his speech was wholly deplorable.
The other reasons for supporting the EMS are cogent and pressing, but I find the right hon. Gentleman's reactionary attitude reason enough to say that there must be something in the EMS.
The reasons for going in are partly political and partly economic. They are of course mainly political, but the two go side by side. It would be tragic if we again missed—we have done it again and again—a vital opportunity to join an imaginative scheme. It has many wrinkles and problems, but they can be worked out afterwards, and we should


join on the first day. The intention is still that that should be 1st January, if the summit can take the proper decision next week.
The reasons are manifold. I shall mention only one or two. If France, proud of her sovereignty and independence, even though a member of the Community —the two things are not contradictory —can do it, so can we. If Italy, with problems of inflation, currency vulnerability verging on the critical still and, I suppose, the most ferocious exchange control regime of all the European countries can go in immediately—and all the indications are that she will—so can we.
The idea that was highlighted in the report of the General Sub-Committee that we still had very special problems as a reserve currency was a gross exaggeration of the role of sterling, which has now declined. Of course, it is still a reserve currency, and more than just technically, but to say that the scope of the problem is so onerous and enormous that we are in a special position is very similar to what we hear from the Minister of Agriculture, Fisheries and Food, who was rightly denounced after the collapse of the last fisheries talks by one Minister, who said that it was amazing how the British still thought they had an empire.
Another argument advanced in the Sub-Committee's report was that the United Kingdom would have to run a lower than average inflation rate. Is not that what this country's objective is, anway? What is the purpose of all the counter-inflation policy pursued by the present Government if it is not to do just that? Membership of the EMS would give us not only a practical obligation and a moral obligation but a technical obligation to pursue a deliberate policy to maintain not only a"strong"currency but a lower-than-average inflation rate than anything that we have had in recent years. Having got the inflation rate down at long last to about 8 per cent., surely the proposal must be welcomed overwhelmingly by all sensible opinion.
I also take issue with the comment in the Sub-Committee's report that United Kingdom exchange controls are more severe than those of other EEC countries. Italy is the obvious example against that case. I think that there is a strong argument for some relaxation of exchange

controls as soon as possible, but it is also in order to say that we cannot do it overnight, and certainly not at the beginning of the EMS.
I may be the only speaker in this debate to refer to the other document which we are considering, R/2790/1/78, dealing with the technical aspects of the creation of the ECU and the European Monetary Co-operation Fund looking after that for a couple of years and being replaced by the European Monetary Fund.
It may seem almost trivial, but I ask hon. Members to imagine the advantages that would accrue to the country if the EMF were to be established, say, in two years from now and located in London. It is long overdue for this country to have a Community institution, and it would be of tremendous benefit for us to have this major new institution.
The Chancellor of the Duchy of Lancaster was right to say that it was no good taking the spurious economic models and the conclusions from them and saying that those were the only conclusions to be reached from any economic projections about the effect of our joining the EMS. It so happens that I arranged for a run-off to be done. If different assumptions are put in at the beginning of the Cambridge economic model, the results are quite different. The results which I obtained indicated that there would be an actual increase in employment, on the same basis as the original assumptions put in by Professor Ward, and that growth would be at least the same if we joined the EMS and might even be slightly better.
All the predictions do not add up to very much. Therefore, this is an effort of will—a decision of will—and it is high politics. On balance, I think that the economic advantages will outweigh the disadvantages. I think that the majority opinion in this country is agreeable to our joining an imaginative new scheme, which I regret to say the Germans and the French are at present leading on their own, where we should be, too, to form a troika of leadership in the Community. Therefore, I hope that although the Government are fainthearted, pusillanimous and equivocal now, they will change their mind in due time and join this scheme before it is too late.

1.5 a.m.

Mr. Eldon Griffiths: This is a time for brevity, so I shall discard 95 per cent. of what I was going to say. I came to this debate seeking answers to three questions. First, would it be better for Britain to go into EMS or to stay out? Secondly, if the answer is to go in, what sort of concessions do we need and how shall we get them? Thirdly, if the answer is to stay out, how shall we manage outside in the cold?
The Chancellor of the Exchequer did not answer any of those questions. Instead of illumination, we received a display of econometric simulation. My right hon. and learned Friend the Member for Surrey, East (Sir G. Howe) went somewhat further. He spoke of our unreserved belief in the need for greater monetary stability and said that we were for, not against, the EMS, although he wisely wanted assurances on a number of subjects, in particular the transfer of resources. But he still left me in the dark.
That is why I am very glad to have sat through the whole debate, because my heart leapt up when I heard my right hon. and learned Friend the Member for Hexham (Mr. Rippon) state clearly that the Conservative Party is in favour of our joining the EMS, provided that we can get the necessary protections for our national interest. That is the approach that he adopted during the negotiations for our entry of the Community in the first place, it is the right approach now, and I am glad that he made that clear.
I was pleased, indeed, relieved, by the speech of the Chancellor of the Duchy, who redeemed the flat and uninspired speech of the Chancellor of the Exchequer.
So I come to the end of the debate with my questions not entirely answered but reasonably satisfied that the Opposition at least would join the EMS, subject to satisfactory assurances. I fear that the Government will not do so; they will prove faint-hearted. My right hon. and learned Friend the Member for Hexham was right to quote the French proverb, that the absent are always wrong. I was brought up to believe that it is nearly always best to be there. We shall do far better for our country and for Europe if we get involved at the beginning and

debate the details as full members of this new system than if we remain on the outside, hoping to get concessions after the others have made their agreement.
It is right to take the decision in principle and to argue the details afterwards, rather than to be caught carping, worrying, destroying, before we make up our minds.
I was disappointed by the speech of the Chancellor of the Exchequer, I was relieved by the speech of my right hon. and learned Friend the Member for Hexham, and the Chancellor of the Duchy at least has given us some cause to believe that, although they will jib at taking the decision on 1st January, sooner or later, because they have sane men in their midst, the Government will reach the conclusion put forward by my right hon. and learned Friend.

1.10 a.m.

Mr. Peter Mills: The House has been considering the effect of EMS on the country as a whole and, in particular, on our economic and financial life. I know that the hour is late, but I have been waiting a long time and I want to probe the effect of EMS on agriculture and food. This is of great interest, not only to farmers but to all in the food processing industry.
I regret that no Minister is in the House. I have many questions that I wish to ask. I hope that I shall receive answers on another occasion. I was also disappointed in the Green Paper, because it contains nothing about the effect on the CAP. The CAP is one of the major achievements of the Community. This matter should be probed, and that is what I intend to do, in spite of the late hour.
This is a complicated subject. It is difficult to have a clear picture. Economists give different views about the agriculture aspect of the issue. Agriculture and the food industry want what is best for Great Britain as a whole. They realise that they cannot prosper if the economy is in trouble. Unemployment, lower wages and inflation are no friends of agriculture and the food industry. Inflation is still the real enemy. If EMS becomes a reality and helps to curb inflation it must be right to go ahead. It will certainly help agriculture and the food industry.
I am no expert, but it seems that EMS will exert real discipline on the country. In the long term that cannot be bad. It seems that it will bring stability. From an agricultural view that is a real plus. For too long, as green pound devaluations have taken place, erosion of the pound has brought us back to where we started, or perhaps further back. This happened in 1978. If stability comes, agriculture would surely welcome it.
I understand that the range of fluctuations allowable without alteration to MCAs would be wider. That is another plus. It would be 4½ per cent. instead of the present 1½ per cent. If a Minister were in the Chamber, as he should be, I should be able to have an answer to that question. It is sad that that cannot be.
The system would not be as variable as it is now. Today, fluctuations occur weekly. Anyone who is in the food processing business, or who is buying in from other parts of the world, knows that the weekly change causes many problems.
What is the position of MCAs in the concept of EMS? What is the position of the green pound? Are we locked into a situation because of EMS? Fears have been expressed, and they should be dealt with. The green pound gap is now 30 per cent. Will it become higher? I understand that the pound might be devalued if we joined the EMS in January. The gap would then be much higher than 30 per cent. It might range up to 35 per cent. or 36 per cent. That would be serious for British agriculture. The fear of being locked in is an important factor. The Minister should make it quite clear that we want changes not in the concept of the CAP, but in its internal working. It is important that the fear that changes cannot be made should be dealt with.
We do not know whether the adoption of the EMS would be accompanied by the adoption of the EUA, the new basket of currencies of account. That would have an enormous effect on MCAs throughout the Community. It has been said that at the present level the current British negative MCA would be reduced from minus 30.8 per cent. to minus 6 per cent., while the German positive MCA would be increased equally sharply from 10.8 per cent. to 25.7 per cent. That is a significant change, and would avoid the

problem of having common prices in the long run. The gap would be very small—down to about 6 per cent. We would have have liked the Minister to give his views on this, with an assurance on the question whether my views are correct.
The unfairness of the subsidies that spring from the MCAs would be on the way out. That would make things fair for the British producer. It would certainly help the long-suffering processors who deal with pigmeat.
If the Irish Republic joint EMS and we do not, the separation of the pound sterling and the Irish pound would mean a permanent and larger distortion in agricultural trade between the two countries. This would be a serious matter, because British agriculture already suffers from the differences between the United Kingdom and the Republic.
I believe that we should make this step, and that we should take it seriously. I hope that it can be accompanied by internal changes in the CAP. Surely it is possible, if we join the EMS as I want, to get a firm guarantee of changes in the internal workings of the policy. That would be a considerable plus for the Community.
I hope that this country will not be shown once more to be dithering. I believe that the objectives of the EMS are right. Agriculture will acquire stability. I hope we shall move towards EMS, because in the long run it will greatly benefit British agriculture and its food producers.

1.19 a.m.

Sir Anthony Meyer: The only point in intervening at this stage is to ensure that the record reflects the growing weight of opinion, as the debate has proceeded, in favour of joining the EMS, culminating in the magnificent speech of my right hon. and learned Friend the Member for Hexham (Mr. Rippon). I caught again some of the echoes of the heroic age of the combat for a united Europe in what I thought was one of the finest speeches he has delivered from the Front Bench.
I am, however, bound to take account of the remarkable speech of my hon. Friend the Member for Croydon, Central (Mr. Moore). It impressed all those who heard it. My hon. Friend advanced


many carefully considered arguments against EMS in its present form. Convincing though his arguments were, the fact is that EMS will come into existence. It will be brought into existence by Chancellor Schmidt and President Giscard d'Estaing. It is surely wrong to assume that either of those statesmen is impractical or anti-European. It would be wrong to assume that their policies are designed to damage the interests of the poorer nations, whether poorer nations within the Community or in the Third world.
I shall make my speech briefly. Britain is part of the EEC. It would have been possible for us not to have joined. Some argue that we would have been better off if we had not, although I profoundly disagree with that view. What is beyond discussion is that it is no longer practically possible for us to leave the EEC. It would be legally but not practically possible to leave it. We cannot stand alone. There is nowhere else that we can go. Once we had shown ourselves to be hopelessly undependable, nobody else would want us.
The EEC is not working well. That is one thing. It is not working to our advantage, and that is quite another thing. However, the two factors are connected. It is not working well because each member State puts its own interests, even short-term or secondary interests, before vital long-term interests and the long-term interests of the Community as a whole. No nation has been more at fault in that respect than the United Kingdom under its present Government.

Mr. English: The hon. Gentleman says that the EEC is not working well. Does he agree that one of the causes for that is the rather—to quote a word used in the House not so long ago—" viscous"quality of the EEC institutions? Decisions take a long time. They have to be agreed by nine representatives in various committees. That is a bad way in which to run a government.

Sir A. Meyer: That is so. That is why I want to see more effective institutional machinery within the EEC and better machinery for arriving at decisions. In addition, there has to be a greater readiness on the part of member States to subordinate their secondary or short-term

interest to the long-term interests of the Community as a whole.
That leads me to my next argument. There are a great many hon. Members who, disliking the EEC, invariably say that none the less they wish to see more international co-operation. Whether we are in the EEC or out of it, we cannot have international co-operation unless those who want to co-operate are prepared to sacrifice some of their own national interests. All that the EEC does is to set up machinery—it might be more effective than it is—to ensure that the minimum sacrifice by each member State produces the maximum good for the Community as a whole. That is what the Community is about. It is institutionalised co-operation.
The only part of the EEC that is working fully—and it is not working well—is the common agricultural policy. The policy was formulated before we became a member of the EEC and its whole concept is contrary to our interests—at any rate, our short-term interests. As the CAP is the only working policy of the EEC, it absorbs the lion's share of the budget. As we had no part in drafting it we have had little success in changing it to reduce our contribution.
If we want to do better out of the EEC, the best way is not to try to cut down its activities. We would have little support if we made that attempt. On the contrary, the best way is to extend the range of EEC activities into areas where we may reasonably hope to gain from effective Community action. If, for example, we were to take the lead in formulating a common energy policy, we could be pretty sure of constructing a policy that would be in our interests.
It is in that spirit that I approach EMS. The technical considerations are, of course, important. They can tell us how much it would cost us in real terms to join the EMS, how long before we could hope for any advantage, and how great, if any, that advantage would be. I shall deal with these technical consideration. First, it is said, the EMS will be set up; secondly, it will become a more important feature of the EEC than the common agricultural policy; thirdly, if we do not join it as founder members it will operate gravely to our disadvantage: fourthly, as time goes on it will become harder for us


to join and the consequences of not joining will become more serious; and, fifthly, we cannot possibly afford to join it now.
This chain of argument spells inexorable decline. We have to try to break out of the vicious circle at some point. We cannot hope to block the EMS, nor should we want to do so, since it offers one of the few hopes of averting a disastrous world slump, touched off by competitive devaluations and import restrictions. If we are outside the EMS, the Common Market will continue to develop more to our disadvantage, although the impossibility of leaving it will remain as absolute as ever. Once the EMS is set up without us, the chances of influencing it more to our taste will be worse than they have been with the CAP. Indeed, after the fiasco of the Labour Party's much-vaunted renegotiation of 1974, such chances are nil.
There is only one way out, and that is to join now and to seek to influence the system from within, before its policies have set hard. I do not quarrel with the Government's using every method to improve their bargaining position. The trouble is that the activities of the Secretary of State for Energy and the Minister of Agriculture, Fisheries and Food have raised a serious doubt about our good faith as partners, while the indecent eagerness with which the Secretary of State for Foreign and Commonwealth Affairs seeks to disavow his former commitment to Europe does little to predispose our EEC partners towards us. Our bargaining position is weak. The best tactic, as well as the best strategy, is enthusiastically to welcome and support what we have no choice but to join, the more so since joining it will be greatly to our advantage.

Mr. John Evans: I beg to ask leave to withdraw the motion.

Motion, by leave, withdrawn.

HOUSING SUBSIDENCE

Motion made, and Question proposed, That this House do now adjourn.—[Mr. John Evans.]

1.27 a.m.

Mr. Julian Ridsdale: I am grateful for the opportunity provided by this Adjournment debate to raise the

question of the problems of protecting householders against subsidence. I have had a particularly had example of subsidence affecting a comparatively new housing estate at Wivenhoe in my constituency, where the houses are only four to five years old. This case has attracted a considerable amount of publicity, both in the press and on television. There are 56 houses on the estate and the insurance companies, acting on a report prepared by a consulting engineer with considerable experience, have paid out on 19 houses. Since then the National House Building Council has commissioned another consulting engineer to prepare another report.
I have been sent the second report but, in spite of promises from the National House Building Council, I have not been sent a copy of the first report made by Mr. Burt, the consulting engineer first employed to report on the subsidence. The second report is, I am told, much more optimistic than the first one. Following the second report, the National House Building Council tells me that the insurance companies have been persuaded to renew subsidence cover and, in the words of the NHBC:
 Building societies are to be informed, in the hope that valuers will respond favourably.
The National House Building Council says that it plans to landscape the estate and carry out the work designed to make the occupied houses safe and habitable once more. It is prepared to give new 10-year certificates on the houses. Nevertheless, the insurance companies have paid out on 19 of the 56 houses on the estate following the first report and, with the adverse publicity in the press and television, quite understandably, a blight has descended on the remaining houses on the estate.
If any of the householders on the estate wish to sell their houses it is unlikely that they will be able to get more than two-thirds of the correct capital value which they would have been able to obtain had subsidence not occurred. A great many of these householders are management executives, for whom mobility is extremely important. Already one householder has had a sale fall through because of what has happened. He is now having to work 200 miles away from his family home at Wivenhoe and now faces most disturbing family problems.
I have been in touch with the householders, the local council, the National House Building Council, and Mr. Burt, the the author of the first report. I have paid several visits to the estate, the last one being this previous weekend. I find the householders far from satisfied. Indeed, they are very disturbed by what has happened and are in a mood to challenge the second report, in spite of the offers which have now been made by the National House Building Council to give a 10-year guarantee on these houses so that mortgages can be obtained from the building societies and the houses reinsured.
I am told by the householders that Dr. Henkel, the author of the second report, was not allowed to go into any of the houses by the householders because the National House Building Council would not let them see a copy of the first report. Indeed, the householders still have a great deal of scepticism about what has happened and are fearful of the present position because of the blight that has been caused. They told me last weekend that new cracks were appearing.
The Colchester district council, which has been left holding the baby, as it were, after local government reorganisation, has been most helpful. It has done everything it can to keep me informed about what is happening and is naturally concerned about what has occurred. Like me, it has already asked for a public inquiry.
I must respect the good faith of the National House Building Council and thank it for having given £59,000 to top up some of the householders who were under-insured, and for the new guarantees which have been given. But, bearing in mind what has happened, and knowing the feeling of the householders, I doubt whether it will be enough to help in this situation, particularly in the light of the further reports that I have received. I have spoken to Mr. Burt, and in spite of the fact that he has signed the second report, I must comment, having heard what he has to say, that I am far from happy about the situation.
I have had a report this evening about a house on the estate which has just been put on the market by a firm of local estate agents. In spite of the National House Building Council's guarantees, it

has sent a letter to the owners of the house saying that the house is unmortgageable, uninsurable and consequently unsaleable, so at the moment my estimate of two-thirds of the previous capital value is wrong. Indeed, I have heard this evening that 150 yards off the estate, in Parkwood Avenue, the insurers now refuse to insure without a £200 structural engineer's survey and report. Curing the blight, therefore, will be a slow and uphill progress.
This brings me to a consideration of what, practically, can be done to help these householders. I have just had a letter from the secretary-general of the British Insurance Association, speaking about the United Kingdom as a whole, and saying that the average cost of repairs to a house that has suffered subsidence is about £3,000. It is estimated that insurance claims for subsidence since 1951 in the United Kingdom have amounted to about £100 million. The secretary-general says that
 A significant factor is that building has taken place in unsuitable sites, for example, on gravel pits, old coal and clay mine workings and steep hillsides and railway embankments.
The British Insurance Association hopes that the Department of the Environment will give guidance to local authorities on the subject of land available for property development and establish a much tougher policy towards this matter. Indeed, some of the pamphlets coming from the Department at the present time signify this, but it does not help the householders in their present situation.
Because of the circumstances that I have outlined, which I heard about as long as six months ago, the local council and I have been pressing for a public inquiry to be held as soon as possible into what has happened at Wivenhoe. There is extreme doubt in people's minds whether planning permission should ever have been given for the site. Has the Minister seen the reports of the district surveyor about the site? Bearing in mind what has happened, we are interested to know what was reported and what the architects say about the site and what has happened there.
Is enough care taken to examine filled-in sites? That is the purport of what the secretary-general of the British Insurance Association wrote to me. From what has happened at Wivenhoe, it seems that


not enough care is taken. In September 1978, the Department of the Environment published a paper on the foundations of low-rise building. It is claimed by many of the householders that the conditions of building in-fill outlined in the paper have not been met in this case. Obviously the contradictory reports of two consulting engineers must be considered as well, though there is now a joint repor
Help has been given by the NHBC, but the council is not and nor are the insurance companies able to give help in respect of blight. The NHBC has told owners that they must realise that they have no legal right of compensation. I regard that as most unsatisfactory. The value of sound houses on the estate is substantially less than it would be ordinarily. In spite of the NHBC guarantees the fact that mortgages are available to buy sound houses and the fact that the other houses are to be rehabilitated, the blight will remain for some time.
Many householders will be several thousand pounds out of pocket, through no fault of their own, if they wish to move. Indeed, if the report that I have just received is correct, it may be much more than that. Obviously the fact that insurance companies have paid out on 19 of the 56 houses on the estate leads one to conclude that it is problematical whether planning permission should have been given for the estate or a substantial part of it. If that is so, the local council or its successor must bear a considerable responsibility for what has happened.
A public inquiry will be a long and slow process. Urgent action is needed to help the remaining householders at Wivenhoe, which is only one example of what is happening on other estates throughout the country. That help can be given only if the local council—in this case the Colchester district council—considers, after examining all the facts, that faulty planning permission was granted and is willing to accept full responsibility, buy from those who wish to sell and, in due time, rehabilitate the estate as the NHBC says may be possible. That is the way of common sense.
I hope that the Minister will look at the matter urgently. This is a most unfair case, and I feel sure that there are bound to be others. My hon. Friend the Mem-

ber for Bury St. Edmunds (Mr. Griffiths) will outline a similar case in his constituency. Something must be done immediately to protect householders against blight in such cases.
While pressing for a public inquiry, I am looking for other, more urgent, action and for the local council to accept responsibility at once, bearing in mind, especially, the doubt that must exist over the granting of planning permission in the first place.
I hope that the Minister will be able to announce that a public inquiry will be held and that action will be taken to help overcome the serious blight and the serious worry caused to many householders, who are in the executive class and must have mobility of labour and should be able to move around, but are prevented from doing so through no fault of their own, but through bad planning.

1.40 a.m.

Mr. Eldon Griffiths: The people of Wivenhoe are very fortunate to have my hon. Friend the Member for Harwich (Mr. Ridsdale) as their Member. He takes a diligent interest in all these problems, and he has done his constituents, and indeed the House of Commons, a service by raising this matter even at this very late hour.
I wish to mention a similar case, and I apologise to the Minister for not having been able to give him full notice of the facts. I refer to Jacqueline Close, Bury St. Edmunds, which suffered severe subsidence a few years ago. Planning permission was given by the local authority, the builder put up two rows of attractive homes, 20 to 30 families moved in, and in a matter of months the houses began to subside.
Underneath the site were some spectacular old chalk workings, which had been dug out during the First World War. The water from the roofs of the new construction had loosened the chalk, displacing some of the foundations. The consequences were alarming. The houses began to slip into deep holes. I went down into some of these caverns. It was an astonishing sight.
For the builder in the first instance it was a financial disaster. He was unable to sell a significant number of the houses


and he did not get his money for some of those already occupied. For the residents—the purchasers—it was a catastrophe. Most lost a good deal of their savings. Nearly all of them lost their homes and then faced the problem of what was to be done. The first question was, and is: was the planning permission wrong in the first place? The local authority denied this, and I do not doubt its good faith. But I have no doubt that it was within the collective knowledge of the council at that time that there had been old chalk workings underneath that site. The authority should perhaps have known, but certainly it had some responsibility to the builder and the residents for what happened.
The second point concerns the blighting that arose in that neighbourhood for a considerable period. In the event, I remember proposing that a compulsory purchase order be made because of the public health hazard that had arisen. After a long time a CPO finally has been made and the council has taken this derelict site into its own possession. In the meantime, several years have passed, there have been great distress and loss to ordinary people. That is unacceptable.
I hope that the Minister will say that where councils give planning permission and where those who, in good faith, build on that land find that there is subsidence for other reasons, which should have been made known in the first instance, responsibility should lie on the local authority to make good some of the losses suffered by innocent people.

1.43 a.m.

The Under-Secretary of State for the Environment (Mr. Ernest Armstrong): The hon. Member for Harwich (Mr. Rids-dale) has raised a serious issue, which I know has caused great disturbance and distress to many people on the estate at Wivenhoe. The hon. Member for Bury St. Edmunds (Mr. Griffiths) has properly drawn attention to the distress caused in his area.
As a Member who represents Durham, I must tell the hon. Gentleman that we are undermined, as it were, as we have widespread coal mining operations. I have great experience of the distress that can be caused by subsidence.
As I understand it, the estate of 56 houses was developed about five years ago, the necessary planning and building regulation consents being given by the then Wivenhoe urban district council. The site originally included a valley with a stream running along the bottom. This valley had been filled with tipped material about 10 years before development began. About half the houses were built on the filled area and a number have now suffered cracking and damage to their foundations.
A number of questions arise—the first and most important of which, I am sure we all agree, is whether there is any real danger to life. In this connection I understand that the council now responsible—Colchester district council—has rehoused the occupants of the houses that it considered to be at risk. The council's insurers have commissioned a survey of the estate, and its results will be considered by the council as soon as they are available. If any further action is necessary in the interests of public health and safety, then I am sure that the council will take it.
Another issue raised is that of compensation for parties injured financially as a result of the subsidence—either directly by damage to their homes or indirectly because of the difficulty that they face in selling and moving away. This financial question is initially for the insurance companies and the National House Building Council.
I understand that the insurance companies and the NHBC acted to enable all the owners affected to move out of their homes. Where householders were underinsured, the NHBC"topped up"insurance settlements of £206,000 with payments totalling £59,000, as the hon. Gentleman mentioned.
The remaining houses on the estate were blighted following reports that there was a danger of further damage. The NHBC commissioned Ove Arup and Partners to report on the position, in association with the local engineer who first reported a potential hazard. The joint report, which I understand has been sent to the hon. Gentleman as well as to residents on the estate and, indeed, to my Department, finds that
 There is at the moment nowhere any sign of any occupied houses which could in any way


be considered dangerous due to foundation settlement or any cause.
Where cracking of walls has taken place, the report continues, reasons other than landslip are to blame—for example, unequal loading, different properties of adjacent building materials, and so on.
The NHBC has offered the householders who are still in residence on the estate an ex-gratia payment of £100 for cosmetic repairs, and now hopes to be able to persuade insurers to give subsidence cover to the houses. The results of the joint survey are being drawn to the attention of the building societies.
I hope that these steps will help owners of the houses still occupied on this estate.
I now turn to the question whether the Secretary of State should institute a public inquiry. It has been suggested that such an inquiry should consider, among other things, the circumstances in which planning and building regulations consent were granted, the adequacy of inspections of the estate before permission was given and while the houses were under construction, the present condition of the estate, and the apportionment of responsibility for compensation.
The Secretary of State's powers to hold public inquiries under section 250 of the Local Government Act 1972 are not relevant to the Wivenhoe case. There are also powers under section 318 of the Public Health Act 1936 to hold a local inquiry in connection with certain functions exercised under that Act and in relation to any matter concerning the public health in any place. These latter powers are essentially related to questions of public health and are normally used only where an inquiry is thought the best way to ascertain facts needed to determine public hazard not limited to the case in the nature and extent of a possible general question.
I must, however, make it perfectly clear that this provides no power to award compensation to injured parties.
As far as the planning matters are concerned, I am advised that a local authority does not have responsibility under planning powers for the stability of land for development, although there are special liaison arrangements in respect of certain coalmining areas.
In the particular case at Wivenhoe, the council has taken action to deal with any immediate risk to public health or safety. The council's insurers, and the NHBC have both commissioned consultants to advise on the present state of the site, and a public inquiry would certainly not hasten progress. The sole purpose of such an inquiry would therefore seem to be to apportion responsibility, although the Secretary of State has no power to award compensation and questions arising could well be the subject of subsequent litigation.
My right hon. Friend will, of course, take account of all that the hon. Member has said, as well as the weighty arguments that I have set out in this debate, and I shall write to the hon. Member when the local authority is informed of my right hon. Friend's decision.
If my right hon. Friend decided not to hold an inquiry, that would not in any way fetter the council if it wished to arrange a public inquiry under an independent chairman.
I should make it clear that if the residents are seeking an inquiry in order to obtain more information about the state of their properties, an inquiry instituted by my right hon. Friend under section 318 of the Public Health Act 1936 would have no more power to require interested parties to divulge information against their wishes than would an inquiry instituted by the local authority.
I recognise the urgency of the matter. I shall read carefully what both hon. Gentlemen said about their views of the local authority's duties and the NHBC and a particular report. I shall discuss the matter with my right hon. Friend.

Mr. Eldon Griffiths: Will the Minister assure me that in arriving at his decision in the Wivenhoe case, he will have regard to the Jacqueline Close example that I mentioned, because the two are comparable?

Mr. Armstrong: I shall certainly get all the information available about Jacqueline Close and discuss it with my right hon. Friend. I recognise the urgency and the distress felt by people in these circumstances. I shall let the hon. Gentleman and the authority know the Secretary of State's decision as soon as possible.

Mr. Ridsdale: Is the hon. Gentleman aware that we are concerned about the plight of these people? They wish to move, they wish to have mobility of labour, and their capital value has gone. That is the question to which we have to address our minds.

Mr. Armstrong: I assure the hon. Gentleman that I take on board the feelings of the people concerned.

Question put and agreed to.

Adjourned accordingly at nine minutes to Two o'clock.